USD/JPY forecast: Japanese yen crashes as traders predict 2 BoJ rate hikes

The Japanese yen continued its downward spiral today as the US dollar rally gained steam, overriding predictions that the BoJ will hike interest rates twice this year.

The USD/JPY exchange rate jumped to 159.88, its highest point since April 30th. It has now nearly completed its recovery since the BoJ intervened in April.

US to publish non-farm payrolls data

The USD/JPY pair continued its uptrend this week as the US dollar rally gained steam. The US dollar index has jumped to $99.8 after ADP published a strong jobs report on Wednesday.

According to ADP, the US private sector added over 122k jobs last month, higher than the median estimate of 118k. It was also a higher number than what analysts were expecting. 

This report came a day after ADP published a strong job vacancies report, which showed that the job openings continued rising. These numbers are signaling that the US labor market is doing relatively well this year

The next important catalyst for the USD/JPY pair will be the upcoming US jobs report scheduled for Friday this week. Economists polled by Reuters expect the report to show that the economy added over 95k jobs in May after creating 115k in the previous month. 

Strong US jobs numbers, coming at a time when consumer inflation remains above 2%, is a sign that the Federal Reserve will hike interest rates later this year. In a statement on Monday, Dallas Fed President Lori Logan said:

"I am increasingly concerned that higher interest rates could ​be ⁠necessary later this year to fully restore price stability and appropriately balance both sides of the Fed’s dual mandate.”

Her statement came a week after Christopher Waller, a top Fed official warned that he would support a rate hike this year if inflation remains strong.

Analysts predict BoJ rate hikes

The USD/JPY pair is also holding steady as analysts predict that the Bank of Japan will have to hike interest rates in its meeting this month. If this happens, it will move rates to 1%, its highest level in over three decades. 

The rising odds of a BoJ rate hike explain why Japan’s government bond yields are soaring. Data shows that the ten-year yield rose to 2.66% from this month’s low of 2.56%. The two-year yield jumped to 1.41%.

These events are happening less than two months after the BoJ intervened in the forex market in a bid to boost the Japanese yen. It pumped billions of dollars in the market, driving the yen to 155 against the US dollar. A BoJ rate hike would benefit the Japanese yen by making its yields more attractive.

USD/JPY technical analysis

USDJPY chart | Source: TradingView

The daily chart shows that the USD to JPY exchange rate has jumped in the past few weeks, reaching its highest point since April 30th. It has moved above the ascending trendline that connects the lowest swings since July 1 last year. 

The pair has remained above the 50-day moving average and the Supertrend indicator, a sign that bulls remain in control. Therefore, the most likely scenario is where the pair continues rising, with the next key target to watch being 160.76. A move above that level will point to more gains towards 161.