USD/JPY prediction: forecast as Japan economy, Nikkei 225 booms
The USD/JPY exchange rate moved sideways after the strong Japanese GDP numbers. The pair was trading at 140, where it has been in the past few days. This price is close to the highest level since November 2022. It has jumped by more than 10% from the lowest point this year.
Japan economy is doing wellCopy link to section
The Japanese economy is doing well as foreign investors continued allocating capital to the country. As I wrote in this article, the Nikkei 225 and Topix indices have surged to multi-decade highs.
Data published on Thursday confirmed this view. According to the statistics agency, the economy expanded by 0.7% on a QoQ basis. This increase was better than the median jump of 0.4%.
The economy expanded by 2.7% on a year-on-year basis, a big improvement from Q4’s growth of 0.4%. This figure was better than the expected growth of 1.6%.
A closer look at the key drivers of the country’s economic growth was capital expenditure by companies, which jumped by 1.4%. External demand dropped by 0.3% while consumer spending jumped by just 0.5% during the quarter.
These numbers imply that the country’s economy is doing better than expected. The USD/JPY pair weakened because the data will likely have no major impact on the actions by the Bank of Japan (BoJ) when it meets next week.
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Expectations are that the BoJ will maintain its interest rates and quantitative easing policies unchanged in a bid to stimulate the economy.
The Federal Reserve, on the other hand, has been a bit hawkish in the past few months and it is unclear what it will do this month. Some analysts believe that the bank will have a hawkish pause while others see it delivering another hike.
USD/JPY technical analysisCopy link to section
The USD to JPY pair has been in a strong bullish trend in the past few months as the Japanese yen weakness continued. It jumped to a high of 141 in May and remains above the 50-day moving average. The pair has flipped the key resistance at 137.77 into a support level. This price was the upper side of the ascending triangle pattern.
Further, the Relative Strength Index (RSI) has continued rising and is now approaching the overbought level.
Therefore, the pair will likely continue rising as the Fed and BoJ divergence continues. If this happens, the next level to watch will be 145.