Despite the strength of the U.S. dollar, the USD/JPY currency pair has maintained its downward trajectory, trading around 156.70 and reaching an intraday low of 156.56.

Several factors, including Japan’s stable bond purchasing strategy, an improving manufacturing sector, and the Federal Open Market Committee’s (FOMC) cautious stance on interest rate cuts, are contributing to this bearish outlook for the USD/JPY price forecast.

Bank of Japan’s Bond Purchasing Strategy

The Bank of Japan (BoJ) recently announced that it would maintain its current levels of Japanese government bond (JGB) purchases, reflecting a cautious approach after reducing bond purchases for 5-10 year bonds last month. This stability in bond purchasing indicates a reluctance to pursue further monetary easing, bolstering the yen and pressuring the USD/JPY currency pair downward.

Japan’s Manufacturing PMI and Its Impact on USD/JPY Pair

Japan’s Manufacturing Purchasing Managers Index (PMI) rose to 50.5 in May from April’s 49.6, according to Jibun Bank and S&P Global. This marks the first expansion in manufacturing activity since May 2023, exceeding market expectations of 49.7 and signaling a positive shift in Japan’s economic outlook.

The improving manufacturing sector boosts investor confidence in the Japanese economy, strengthening the JPY and contributing to the USD/JPY pair’s bearish trend.

FOMC Minutes and Their Impact on USD/JPY Pair

The release of the latest FOMC minutes revealed that Federal Reserve policymakers remain concerned about persistent inflation. This has led the Fed to adopt a cautious stance toward interest rate cuts, strengthening the U.S. dollar.

However, the JPY’s strength, supported by Japan’s improving economy and stable BoJ policies, continues to exert downward pressure on the USD/JPY pair.

USD/JPY Price Forecast

The USD/JPY is currently trading at 156.75, down 0.02% for the day. The 4-hour chart indicates a pivot point at 156.87. Key resistance levels are 157.97, 158.98, and 159.97, while immediate support levels are 155.80, 154.61, and 153.43.

The Relative Strength Index (RSI) is at 65, suggesting the pair is approaching overbought territory, indicating a potential pullback in the short term. The 50-day Exponential Moving Average (EMA) is at 155.94, providing key support.

Technically, the USD/JPY shows signs of potential bearish movement as it trades just below the pivot point. A strategy to consider is selling below 156.87, targeting a take-profit level of 155.80 and setting a stop loss at 157.75.

Should the USD/JPY break below immediate support at 155.80, further declines towards 154.61 and 153.43 are plausible. Conversely, a break above 156.87 could test resistance levels at 157.97 and 158.98.