USD/JPY forecast: signal ahead of FOMC and BoJ decisions

The USD/JPY exchange rate tilted upwards on Monday morning as investors focused on the upcoming Federal Reserve (FOMC) and Bank of Japan (BoJ) interest rate decisions. It rose to a high of 148.75, up from this month’s low of 146.56.

Bank of Japan interest rate decision

The BoJ will be one of the top central banks to watch this week as it delivered its monetary policy decision on Wednesday.

This will be a crucial meeting since the bank has signaled that it will maintain a hawkish tone as its battle against inflation intensifies. 

Data released in February showed that the headline Consumer Price Index (CPI) rose from 3.6% in December to 4.0% in January. It has been on a gradual increase after bottoming at 2.3% a few months ago. 

Economists expect this week’s data to show that Japan’s inflation rose modestly in February.

Japan’s inflation has risen because of the low unemployment rate that has led to higher wages in the country. 

The base case is where the BoJ will leave interest rates unchanged this week as officials observe the implications of Donald Trump’s trade war. Trump has threatened to implement reciprocal tariffs, which may hurt Japan’s economy. 

Fed decision ahead

The next catalyst for the USD/JPY pair will be the upcoming Federal Reserve interest rate decision scheduled on Wednesday. 

Like with the BoJ, economists expect the central bank to leave rates unchanged at 4.5%. It will then hint that it will deliver more interest rate cuts later this year.

The Fed’s biggest concern is that the US inflation has remained at an elevated level for longer than expected. 

Data released last week showed that US inflation dropped from 3.0% in January to 2.8% in February. Core inflation fell from 3.3% to 3.1% during the month. 

These inflation numbers, while encouraging, don’t tell the full story about inflation since they did not include Trump’s tariffs. 

Therefore, the Fed will leave rates unchanged as it continues to observe the implications of these tariffs on the US economy. 

There will be other top US macro data to watch this week, but their implications on the Fed will be muted. 

USD/JPY technical analysis

The daily chart shows that the USD/JPY exchange rate has risen in the past few days. It rose from a low of 146.57 this month to the current 148.91. 

The pair remains slightly above the ascending trendline that connects the lowest swings since September last year.

It has now crossed the crucial resistance level at 148.67, the lowest swing in December last year. 

The USD/JPY pair’s 50-day and 100-day moving averages have formed a bearish crossover. Also, the Relative Strength Index (RSI) and the Percentage Price Oscillator (PPO) have pointed upwards. 

Therefore, the USD to JPY will likely resume the downward trend as traders target the next key support at 145. A move above the resistance at 150 will invalidate the bearish USD/JPY forecast.