The Japanese Yen to USD rate has been quite volatile in March. We saw a 5-cent dive early this month in USD/JPY, but then the Yen turned softer again and this forex pair surged higher, as it continues to make higher lows, indicating a break of the all-time high at 152 and a continuation toward 155.

USD/JPY Technical Analysis – The 200 SMA Held As Support

The Yen has been particularly, with the Bank of Japan holding interest rates in negative territory for a prolonged period as inflation remained under control in Japan. As a result, USD/JPY has been returning above 150 pretty often. However, we saw a 500 pip dive early in March, which sent this pair to 146.50s where it met the 200 SMA (purple) on the daily chart.

This moving average held as support and we saw a bounce higher in the next two weeks. This has taken USD/JPY to record highs just below 152 again and it seems like this time buyers will break above this level. Last week’s FED meeting leaned on the dovish side according to the market’s expectations, but it didn’t hurt this pair and now the price is just hanging below this important zone, waiting for another push higher.

BoJ Policy Tightening Hurts the JPY

The Bank of Japan (BOJ) implemented a significant policy shift by raising short-term interest rates from -0.10% to 0%, marking a ten-basis-point adjustment. Alongside this decision, the BOJ announced its intention to continue purchasing Japanese government bonds while halting acquisitions of exchange-traded funds (ETFs) and real estate investment trusts (REITs).

This move indicated the BOJ’s commitment to moving toward monetary normalization, however, the market is not expecting more from them apart from direct intervention in the FX market, which has turned the JPY even more dovish. Furthermore, the BOJ plans to gradually decrease its purchases of commercial paper and corporate bonds, aiming to complete these buybacks within a year. This decision effectively brings an end to the BOJ’s yield curve management policy, indicating a shift towards a less accommodative monetary stance but leaving no more bullets to the BOJ arsenal in terms of policy.

The markets had already anticipated the BOJ’s policy adjustment, resulting in the move not coming as a surprise to investors. Despite the policy shift, the Bank of Japan remains committed to maintaining accommodative monetary conditions, which could potentially exert downward pressure on the yen. So we will use the 152 level to buy USD/JPY during dips if this zone is broken soon.

Goldman Sachs Even More Bullish On USD/JPY

Goldman Sachs has revised its forecasts for USD/JPY, indicating a bearish view on the yen. The updated forecasts are as follows:

• 3 months: Forecasted at 155 (previously 145)
• 6 months: Forecasted at 150 (previously 142)
• 12 months: Forecasted at 145 (previously 140)

These forecasts, outlined in a note sent to clients on Friday, reflect a shift towards a weaker yen against the US dollar. Goldman Sachs attributes this bearish outlook to what they describe as a “benign macro risk environment.” Additionally, the analysts at Goldman Sachs do not expect rate cuts from the Federal Reserve to bolster the yen.

They argue that anticipation of potential rate cuts has diminished the probability of recession risks, which typically trigger safe-haven demand for the yen. This perspective suggests that the yen may face downward pressure in the coming months, as market dynamics and central bank policies influence currency movements.

USD/JPY Live Chart