The Shoe Drops! Will USD/JPY Turn Downward?

Summary:

The Bank of Japan raised interest rates on Tuesday to their highest level since 1995 and announced plans to gradually reduce its government bond purchases; these factors combined to bolster the yen.

BUY USDJPY

EXP

TRADING

160.209

Entry Price

163.000

158.000

160.294 -0.162 -0.10%

0.0

Pips

Flat

158.000

Exit Price

160.209

Entry Price

163.000

Fundamentals

On Tuesday, the Bank of Japan announced it was raising its short-term policy rate from 0.75% to 1%. This marks the first rate hike since last December and brings Japan’s borrowing costs to their highest level since 1995. The decision was approved by a 7-to-1 vote, with the sole dissenting vote coming from Toichiro Asada, a dovish member of the Policy Board nominated by Prime Minister Sanae Takaichi. The market had widely anticipated this rate hike, so the overall reaction was relatively subdued. The Bank of Japan stated that although economic risks related to the situation in the Middle East have eased somewhat compared to earlier, rising energy prices caused by the war in Iran continue to fuel domestic inflationary pressures. There is a risk that core inflation could exceed the 2% price stability target, making it necessary to further advance policy normalization. The central bank noted that medium- to long-term inflation expectations continue to rise, and noticeable changes in corporate pricing behavior make the upside risks to core inflation even more cause for concern.

Although the market widely expects the Federal Reserve to keep the federal funds rate target range unchanged at 3.50% to 3.75% at this week’s meeting, the focus of discussions among policymakers has shifted significantly. Compared to three months ago, the Fed’s latest “dot plot” is expected to show a more hawkish bias. Recent stronger-than-expected job growth, coupled with inflationary pressures from rising energy prices driven by the war in Iran, has shifted the focus of the Federal Open Market Committee’s discussions from “whether to cut rates” to “whether further rate hikes are needed.”

Technical Analysis

On the daily chart, the USD/JPY pair shows narrowing Bollinger Bands and flat moving averages, indicating a potential reversal at any time. It is highly likely to rise to near the previous high at 160.8. The RSI stands at 57, suggesting that market participants are predominantly buying. On the 4-hour chart, the Bollinger Bands are narrowing, moving averages are flat, and the MACD fast and slow lines are trading above the 0 line, indicating that the bullish trend remains intact. The RSI stands at 45, indicating that the market is in a bearish mood. The recommended strategy is to buy on dips.

The Shoe Drops! Will USD/JPY Turn Downward?_1

The Shoe Drops! Will USD/JPY Turn Downward?_2

Trading Recommendation

Trading Direction: Buy

Entry Price: 160.1

Target Price: 163

Stop-Loss Price: 158

Support Levels: 158, 157, 155

Resistance Levels: 161, 162, 163

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The Shoe Drops! Will USD/JPY Turn Downward?

Risk Disclosure