USD/JPY finds some support ahead of the BOJ and Fed rate decisions

Written by: Crispus Nyaga
April 26, 2021
  • The USD/JPY has found some support at the 38.2% Fibonacci retracement level.
  • The pair will likely break out lower ahead of the BOJ and Fed decisions.
  • The banks will likely hint to possible tightening later this year.

The USD/JPY pair is still under pressure ahead of a relatively busy week where the Fed and Bank of Japan (BOJ) are set to deliver their interest rate decision. It is trading at 107.76, which is slightly above last week’s low of 107.50.

USD/JPY price action

Bank of Japan and Fed decisions

The BOJ will conclude its two-day meeting and deliver its interest rate decision tomorrow. This decision comes at a time when the country’s economy is emerging from its deepest contraction in modern memory. 

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Recent data showed that the country’s manufacturing and services sectors are recovering, albeit at a slower pace than other countries. However, consumer prices are still under pressure, with the headline inflation being below 1%. 

Therefore, the USD/JPY price will likely have some volatility as the BOJ makes its decision. Economists expect the bank will leave interest rates at -0.10%, where they have been for years. The bank will also continue with its yield curve control program. 

As such, the key item to watch will be the statement on its broad quantitative easing. Some economists expect that the bank will continue with the current pace of asset purchases. Others believe that it will hint to a possible tapering of these purchases. Furthermore, the purchases have led to a sharp increase of its balance sheet to more than $7 trillion, which is higher than the country’s total GDP. 

The USD/JPY is also struggling ahead of the Fed decision that will come out on Wednesday this week. Like the BOJ, the Fed is expected to leave interest rates and quantitative easing policies unchanged. However, with the economy recovering at a faster pace than expected, some analysts at key forex brokers believe that the bank will start talking about tapering.

USD/JPY technical forecast

USD/JPY technical chart

The USD/JPY pair has been in a strong downward trend. It has fallen by almost 3% from its highest level this year. As a result, the pair has moved below the 25-day and 50-day exponential moving averages. It has also found some resistance at the 38.2% Fibonacci retracement. This type of resistance is usually a common occurrence when the price hits a key retracement level. Therefore, in the near term, the pair may keep falling as the market attempts to test the 50% retracement at 106.52.