Title: USD/JPY Forecast: Yen Climbs to 154 as Powell’s Hawkish Pivot Triggers U.S. Yield Surge
Source: Originally reported by Rich Dvorak, TradingNews.com
The Japanese yen has recently strengthened against the U.S. dollar, pulling the USD/JPY pair back to the 154.00 level. This appreciation in the yen comes amid a surge in U.S. Treasury yields, following a notably hawkish tone adopted by Federal Reserve Chairman Jerome Powell. The forex markets have responded accordingly, adjusting their expectations for interest rates while reassessing the timing of the Federal Reserve’s next move.
This article provides a comprehensive breakdown of the developments causing the movement in USD/JPY, a technical analysis of the currency pair, and future considerations for traders and investors.
Market Background: Yield Surge and Hawkish Fed Commentary
The currency markets were rattled earlier this week as Federal Reserve Chairman Jerome Powell delivered firm remarks indicating that interest rate cuts may not materialize as early as anticipated. Powell acknowledged slower progress in bringing inflation down toward the Fed’s 2 percent target and stated that continued restrictive policy might be necessary for an extended period.
Key points from Powell’s comments:
– The Federal Reserve has seen a “lack of further progress” on inflation since the beginning of 2024.
– Current monetary policy remains restrictive, but not sufficiently so to restore price stability.
– Powell signaled the possibility of keeping interest rates unchanged for longer than previously anticipated.
– He emphasized that the Fed does not yet have enough confidence to begin lowering rates.
As a result of Powell’s relatively hawkish stance:
– The U.S. 10-year Treasury yield surged above 4.6 percent, a level last seen in November 2023.
– The 2-year Treasury yield, which responds more directly to Fed policy expectations, also climbed significantly.
– Fed fund futures markets rapidly repriced expectations, now showing a reduced likelihood of rate cuts in the near term.
The renewed rise in terminal rate expectations has created fresh tailwinds for the U.S. dollar across currency pairs. However, in the case of USD/JPY, the yen’s sharp appreciation has been partially attributed to increased expectations of Japanese intervention and rising Japanese bond yields.
Japanese Yen Strengthens Amid Intervention Watch
The Japanese yen advanced significantly against the U.S. dollar, defying broad-based dollar strength fueled by higher yields. Traders and analysts point to probable verbal intervention from Japanese officials and heightened market vigilance about the yen’s valuation.
Factors contributing to yen strength:
– Verbal interventions by Japanese policymakers who have expressed concern over unauthorized speculation in the currency market.
– Rising speculation that Japanese authorities may intervene in foreign exchange markets if the yen continues to weaken past critical thresholds such as 155.00.
– Increased Japanese 10-year government bond yields, which have risen in tandem with U.S. yields, helping support the yen.
While the Bank of Japan (BoJ) remains generally dovish, the recent rate hike from negative territory and signs of incremental normalization have allowed yen support to coalesce around technical and psychological levels.
USD/JPY Technical Analysis: Bulls Step Back as Resistance Holds
The USD/JPY currency pair has retreated from the 155.00 psychological mark to around 154.00 as of the latest trading session. The pullback appears to be driven by a combination of intensified yen buying and traders locking in profits after a multi-week rally.
Key technical observations:
– The pair struck strong near-term resistance at 155.00, a level last tested in 1990.
– The RSI (Relative Strength Index) has hovered in overbought territory, suggesting a consolidation or correction phase may be underway.
– A retracement from 155.00 offers short-term bearish bias, with initial support located near the 152.70 level.
– Below that, support may emerge around 151.90 to 152.00, which coincides with late March consolidation.
Still, the longer-term uptrend in USD
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