USD/JPY Forecast: Bulls Hold 147.65 Ahead of Fed-BoJ Showdown
USD/JPY closed the week at 147.67. The yen is still on the back foot as global risk appetite and rising US yields continue...
Quick overview
- USD/JPY closed the week at 147.67, supported by rising US yields and a dovish stance from the Bank of Japan.
- Cooling inflation in Japan allows the BoJ to maintain negative rates, contrasting with the Fed's hawkish approach.
- Technically, USD/JPY is testing resistance at 147.72, with potential targets of 149.06 and 150.27 if it breaks above.
- The upcoming central bank meetings could lead to significant volatility in the USD/JPY pair.
USD/JPY closed the week at 147.67. The yen is still on the back foot as global risk appetite and rising US yields continue to favor the US dollar. Traders are now focused on next week’s central bank decisions with both the Federal Reserve and Bank of Japan meetings on the calendar—keeping policy divergence front and center.
Rising Yield Gap and Cooling Inflation Boosts USD/JPY
The greenback is getting support from the Fed’s higher for longer rate strategy which is in contrast to the BoJ’s super dovish stance. Japan’s July Tokyo CPI dropped to 2.9% from 3.1% so inflation may be cooling. The slower inflation gives the BoJ more room to delay any shift away from negative rates.
In contrast the Fed is expected to re-affirm its hawkish tone with resilient US data and sticky core inflation. This widening interest rate differential is keeping the yen under pressure and fueling further upside in USD/JPY.
USD/JPY Technical Outlook: Momentum Builds But Resistance Looms
From a technical standpoint USD/JPY is at 147.65 testing the 50-SMA at 147.72 on the 4-hour chart. Price is still in a rising wedge so bullish but also looks exhausted.
Key levels to watch:
- Immediate resistance: 147.72 (50-SMA) and 149.06
- Wedge top target: 150.27
- Support zones: 147.00, 145.84 (trendline support), 144.25
Price bounced off the wedge lower trendline so buyers are still in control. But RSI has turned down from 56.81 so momentum is waning. Above 147.72 could unlock 149.06 and then 150.27, below 147.00 could expose 145.84.With both the Fed and BoJ announcing next week USD/JPY is set for big moves. The Fed is expected to hold rates steady and signal caution while the BoJ may downplay inflation risks.
As long as the interest rate gap is wide and Japanese inflation is soft the bias is for the dollar. But watch out for any surprises from the BoJ which could get the pair out of the range.
In summary:
- USD/JPY is bullish above 147.00
- Above 147.72 targets 149.06 and 150.27
- Near term risk is below 147.00 for 145.84
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