USD/JPY forecast ahead of US NFP, CPI, and BoJ decision

on Mar 9, 2023
  • The USD/JPY price retreated slightly as Jerome Powell testified.
  • The Bank of Japan will deliver its next monetary policy decision next week.
  • Focus remains on the upcoming US jobs and inflation numbers.

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The USD/JPY price pulled back as investors patiently waited for the final Bank of Japan (BoJ) decision by Haruhiko Kuroda. It also retreated ahead as Kazuo Ueda prepares to become the next BoJ governor in April. It was trading at 136.96, which is a few points below the year-to-date high of 137.88.

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BoJ and Fed decisions in focus

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The most important upcoming forex news is the BoJ and Federal Reserve decisions scheduled for March 10 and 22, respectively. These will be pivotal decisions that will likely set the tone for what to happen for the rest of the year.

In Japan, Haruhiko Kuroda will chair his final meeting ever. As such, there are some expectations that he will tweak the language of his yield curve program that has maintained bond yields at a record low. In contrast, American bond yields have surged, with the 10-year bonds having a bond yield of about 4%. The two-year note has a yield of more than 5%.

Therefore, one of the reasons why the USD/JPY pair has jumped is the carry trade opportunity. This is where many people and companies in Japan have moved to the safety of the US dollar. Also, investors have taken the risk-free approach of investing in US assets, which have better returns.

The carry trade opportunity is expected to continue rising in the coming months. In his testimony in Congress this week, Jerome Powell reiterated that the bank was still increasingly concerned about the stubbornly high inflation. As a result, he believes that the Fed will need to maintain an aggressive policy when it meets later this month.

The bank’s decision will depend on what will happen on Friday and Tuesday. On Friday, the US will publish the next non-farm payrolls (NFP) data. They will be followed by the latest US consumer inflation numbers on Tuesday. If these numbers come out strong, there will be a high probability of the Fed hiking by 0.50%.

USD/JPY technical analysis

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The USD to JPY price has been in a slow bullish trend in the past few weeks, as I wrote here. As it rose, the pair has formed an ascending channel that is shown in blue. It is now loitering near the middle of this regression line while being supported by the 50-period exponential moving averages (EMA). The Relative Strength Index (RSI) is hovering near the neutral point at 50.

Therefore, the pair’s bullish trend will continue as long as the price is above the 50-period moving average. This means that buying the dip seems like a viable strategy. In this regard, we can’t rule out a situation where the pair retests the lower side of the channel at about 136.28.

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