Original article by Zain Vawda, republished and rewritten for clarity and length.
Title: USD/JPY Forecast: Dollar Holds Strong Above 156 as Bank of Japan Stays Silent, U.S. Yield Advantage Persists
The USD/JPY currency pair continues to display resilience, maintaining levels above the key 156.00 threshold amid mounting economic divergences between the U.S. and Japan. Investor sentiment leans heavily in favor of the dollar as the Federal Reserve holds firm on its higher-for-longer interest rate stance, while the Bank of Japan (BoJ) remains passive, allowing the dollar to benefit from an enduring yield advantage.
On Monday, USD/JPY hovered around 156.25 as U.S. bond yields continued their upward momentum. Japan’s central bank has so far refrained from aggressive monetary responses, and this inaction has thrown further weight behind the dollar. Markets remain keenly focused on upcoming economic data from both nations, especially jobs figures and inflation readings, for confirmation of current trends and potential policy shifts.
Key Technical Overview: USD/JPY Struggles to Break Out Despite Bullish Structure
Over the past month, USD/JPY has attempted several forays beyond the 156.00 level. Despite these repeated attempts, the pair has struggled to sustain upward momentum beyond the highs established in April 2024. The lack of follow-through buying may be attributed to concerns over potential Japanese government intervention or to technical exhaustion.
Technical notes:
– The pair trades above both the 50-day and 200-day moving averages, which reinforces the bullish narrative.
– Oscillators such as the Relative Strength Index (RSI) remain close to overbought levels but have yet to trigger significant reversals.
– Immediate resistance lies at 156.75, followed by the 2024 high around 160.20.
– Support rests at the 155.00 psychological level, with stronger support at 153.50 and 152.00 respectively.
– Price action remains within a higher-timeframe bullish channel, indicating bulls are still in control, albeit with decreasing momentum.
Bank of Japan’s Passive Stance Keeps Yen Under Pressure
The BoJ has steadily avoided making any definitive moves regarding interest rates or direct currency intervention, despite the yen trading at multi-decade lows. The central bank’s silence, especially in contrast to verbal warnings earlier in the year, has contributed to upward pressure on USD/JPY. Traders and investors are increasingly questioning the BoJ’s resolve or ability to influence currency markets.
Key points surrounding the BoJ’s position:
– The central bank’s latest policy meeting offered minimal clarity on rate hikes or plans to unwind its yield curve control (YCC) measures.
– With core inflation still moderate and economic growth diverging from the U.S., the BoJ is likely to retain its wait-and-see approach.
– Market participants remain on alert due to sporadic jawboning from Japanese officials, but actual policies or interventions remain absent.
Yield Differential Remains the Defining Factor
The stark contrast in monetary policy between the U.S. Federal Reserve and the BoJ contributes to a wide yield gap that continues to bolster the attractiveness of the greenback. Strong recent economic data from the United States—particularly in employment and inflation—has allowed U.S. Treasury yields to march upward, benefitting the dollar across the board and particularly in the USD/JPY pair.
Key drivers behind the U.S. yield advantage:
– U.S. Federal Reserve officials, including Chair Jerome Powell, have reiterated the need for sustained evidence of easing inflation before any rate cuts.
– The Fed’s higher-for-longer interest rate posture has boosted the 10-year U.S. Treasury yield, which is hovering above 4.5 percent.
– Japanese government bond (JGB) yields remain subdued around 0.8 percent for the 10-year note, emphasizing the stark gap in returns.
– Capital flows favor U.S. dollar-denominated assets due to stronger returns
Explore this further here: USD/JPY trading.