USD/JPY forecast: signal ahead of the BoJ interest rate decision

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on Apr 22, 2024
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  • The USD/JPY exchange rate continued its strong performance this week.
  • The Bank of Japan will deliver its interest rate decision this week.
  • The US will publish the latest GDP and PCE numbers on Thursday and Friday.

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The USD/JPY exchange rate will be the forex major to watch this week as the Bank of Japan (BoJ) delivers its interest rate decision and as the US publishes crucial economic data. It was trading at 154.60 on Monday morning, much higher than the year-to-date low of 140.25.

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Bank of Japan decision and US economic data ahead

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The USD to JPY pair continued its strong rally this week as traders waited for the upcoming BoJ interest rate decision.

This will be a notable decision for two key reasons. First, the meeting comes at a time when the Japanese yen has plunged to a multi-decade low. It has even crossed the important level at 153, which was often seen as a key point for the BoJ to intervene.

Second, the BoJ decision comes a month after the BoJ decided to deliver its interest rates for the first time in over 17 years. It moved rates from minus 0.10% to 0.0%.

Therefore, this meeting will be important as traders watch whether the bank will continue hiking rates this month. Economists expect the bank will leave rates intact this time. They also expect that the bank will deliver two more hikes later this year.

Japan’s inflation has remained strong in the past few months. The headline Consumer Price Index (CPI) rose to 2.7% in March while core CPI jumped by 2.6%. These numbers are significantly higher than the BoJ’s target of 2.0%. In a note, analysts at ING said that:

“Given that higher commodity prices combined with a weak yen are hikely to push up both headline and core inflation, the BoJ’s need to raise rates sooner than market consensus is likely to increase in our view.”

The USD/JPY exchange rate has also continued rising because of events in the United States where inflation has remained above 2%. As a result, most analysts believe that the Fed will maintain interest rates steady or even hike this year.

The US will publish important economic numbers this week. It will release the crucial GDP figures on Thursday, with most economists expecting it to have grown by over 2% for the seventh straight quarter. 

The US economy is doing well because of the impacts of the stimulus package by the government. Biden and Trump pumped over $10 trillion in stimulus since 2020. 

The other important economic numbers to watch will be the upcoming US PCE report, the most important inflation figure. 

Therefore, the bottom line is that investors will continue favouring the higher-yielding US dollar compared to the Japanese yen.

USD/JPY technical analysis

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USD/JPY

USD/JPY chart by TradingView

The USD to JPY exchange rate has been in a strong uptrend in the past few months. Most recently, the pair has crossed the crucial resistance point at 151.94, its highest swing in November. It has remained above the 50-day and 25-day moving averages while the Relative Strength Index (RSI) has moved above the overbought level.

Therefore, the outlook for the USD/JPY pair is extremely bullish, with the next point to watch being at 155. The alternative scenario is where it retreats and retests the support at 151.94 and then resumes the uptrend. This price action is known as a break and retest pattern. 

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