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Japanese Yen Forecast: FOMC vs BoJ, USD/JPY Vulnerable to a Reversal

Japanese Yen Forecast: FOMC vs BoJ, USD/JPY Vulnerable to a Reversal

Justin McQueen, Strategist

JPY Price Analysis & News

  • USD/JPY Continues to Track Treasury Yields
  • FOMC vs BoJ
  • USD/JPY Technicals

USD/JPY Continues to Track Treasury Yields

Since the beginning of the year, USD/JPY has been a one-way trade, where the pair has moved in lockstep with US bond yields. That said, while momentum continues to point to a market that is bid USD/JPY, given how overbought the pair is, chasing this move higher looks unattractive from current levels. Alongside this, USD/JPY speculative positioning has moved into neutral territory following a liquidation in bullish bets and thus risks are more broadly balanced.

USD/JPY CFTC Positioning

FOMC vs BoJ

With the two main events of the week being the FOMC and BoJ meeting, USD/JPY implied volatility is at the highest level since the US election. Regarding the BoJ, they will be releasing findings from their monetary policy review, which is likely to entail tweaks to its current policy.

  • YCC: Contrasting statements between the BoJ Governor and Deputy Governor has reduced the likelihood that the YCC band will be widened with Governor Kuroda stating that there is “no need to change YCC framework”. However, should the BoJ surprise markets by widening the band, this could be met with a knee-jerk lower in USD/JPY.
  • ETF Buying: Source reports have recently highlighted that the central bank could remove one of its two pledges on ETFs, either the pledge to buy at an annual pace of JPY 6trillion or to buy up to JPY 12trillion.

For more insight on the Federal Reserve outlook, click here

USD/JPY Technicals

A bearish RSI divergence and key resistance ahead at 109.85-110.00 may see further upside struggle in the pair. That said, pullbacks in USD/JPY is likely to find support at 108.34 and 108.00 where a close below would be needed to signal a more meaningful reversal.

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How to Trade USD/JPY
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USD/JPY Chart: Daily Time Frame

Source: Refinitiv

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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