USD/JPY price forecast ahead of the July BOJ meeting

By:
on Jul 17, 2022
  • BOJ's decision is due next week
  • USD/JPY remains bullish while above the 0-2 trendline
  • Elliott Waves indicates a move to 147

For financial market participants, the week ahead is a special one. The European Central Bank (ECB) meeting is due on Thursday, and it may be the highlight of the trading week, but one should not discount the Bank of Japan (BOJ) decision due on the same day.

After all, if there is one currency that moved in 2022, it was the Japanese yen. It lost ground against all its peers and not only against the US dollar, meaning that the BOJ’s policy of controlling the yields had a generalized effect on the yen.

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The chart below needs no explanation. A quick look tells us that in a little more than one year, the USD/JPY exchange rate rose by more than 26 big figures (i.e., more than 2,600 pips points).

So, where would the USD/JPY go next? And equally important, is it time to buy the JPY ahead of the BOJ meeting?

USD/JPY remains bullish while above the 0-2 trendline

Despite the extended run higher, the USD/JPY exchange rate remains bullish as long as the market holds above the 0-2 trendline (the red, rising trendline seen on the chart below).

According to the Elliott Waves theory, the market should stay above the 0-2 trendline as long as the 3rd wave is under development.

In this case, the USD/JPY consolidated for about a month in a running correction. The correction recently ended with a triangle, implying that the third wave started when the triangle ended.

The 2nd wave alone is exceptionally bullish. Because the x-wave is larger than the first a-b-c, it suggests further strength.

Moreover, because the triangle ended above the point where the 1st wave ended, it means that this is a running correction. Such a correction is always followed by a 3rd wave that is at least 161.8% of the 1st  wave, projected from the end of the 2nd wave.

To sum up, the USD/JPY remains bid while above the rising trendline, and the 140 level looks like a pivotal one. If the BOJ does not suggest that it stands ready to change its yield curve control program, the Japanese yen’s decline will likely resume.

The Elliott Waves theory suggests 147 as a target for the extended 3rd wave. If the price holds above the 0-2 trendline, we are in for a summer of further JPY weakness.

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