USD/JPY forecast: rising wedge forms ahead of Fed, BoJ decisions

The USD/JPY exchange rate continued its uptrend ahead of the upcoming Bank of Japan (BoJ) and Federal Reserve interest rate decision. The pair rose to a high of 147.67, the highest level since November last year.

BoJ and Fed decisions

The USD/JPY exchange rate will be the currency to watch next week as the Fed and BoJ are set to deliver their decisions on Wednesday and Friday, respectively. These will be important decisions because of the current state of the market. 

The US dollar index (DXY) surged to the highest level in five months while crude oil surged to the year-to-date high of $93. Analysts believe that oil could jump to over $100 in the coming months. 

Data published this week showed that America’s inflation remained at an elevated level in August. The headline inflation jumped to 3.7% in July while core CPI slipped to 4.3%. At the same time, retail sales jumped in August. 

Meanwhile, UAW workers started a strike that could push auto prices higher and slow the economy. Therefore, there is a likelihood that the Fed will decide to deliver a hawkish pause. 

Meanwhile, the Bank of Japan is dealing with a plummeting yen. The currency has plunged by more than 30% from its lowest level during the pandemic. While a weaker yen helps its exporters, it hurts companies that deal with imports like retailers.

The BoJ has taken measures to limit the Japanese yen crash. For example, it decided to tweak its yield curve in the last meeting. Therefore, with Japan’s inflation still above 2%, the bank could decide to deliver its first interest rate hike in years. 

USD/JPY technical analysis

The USD/JPY exchange rate has been in a strong bullish trend in the past few months. In this period, the pair has remained stubbornly higher than the 50-day moving average. The pair has also formed a rising wedge pattern, which I have shown in red. Further, the MACD has formed what looks like a bearish divergence.

Therefore, the pair will likely have a bearish breakout in the coming week since the wedge is nearing its confluence level. If this happens, the next level to watch will be at 145.