USD/JPY Breaks Resistance, Bulls Eye 151 as Fed and BoJ Meetings Loom

Warren Takunda

Economic

Summary:

The Japanese Yen continues to slide as risk sentiment remains positive, lifting USD/JPY to a fresh two-week high.

BUY USDJPY

Close Time

CLOSED

149.500

Entry Price

152.000

147.600

155.814 +0.255 +0.16%

8.3

Pips

Profit

147.600

149.583

Exit Price

149.500

Entry Price

152.000

The Japanese Yen (JPY) has seen a steady decline for the third consecutive day on Tuesday, driven by a positive global risk sentiment that has fueled demand for the US Dollar (USD). The USD/JPY pair surged to a fresh two-week high around the 149.85 mark, benefiting from a modest bounce in the US Dollar and broader optimism regarding global economic conditions. The prevailing market mood, supported by expectations of further stimulus from China and hopes for a peace deal in Ukraine, continues to weigh on the Yen, traditionally viewed as a safe-haven currency in times of uncertainty.

This recent decline in the Yen is a reflection of the broader shift in risk sentiment, as traders remain optimistic about the potential for economic recovery, particularly in China, where stimulus measures are expected to bolster domestic consumption. The Chinese government unveiled a special action plan over the weekend aimed at stimulating consumer spending, which is supporting global risk assets and encouraging investors to seek higher yields elsewhere, including in USD-denominated assets.

Further fueling the upside move in USD/JPY is the modest recovery in the US Dollar from the multi-month lows it hit earlier this week. On Monday, the US Dollar Index (DXY) touched its lowest point in several months, but a modest bounce has provided some support to the USD, boosting the USD/JPY pair. While the recovery in the US Dollar is notable, traders are wary of the ongoing divergence in policy expectations between the US and Japan, which may cap further upside for USD/JPY in the near term.

Markets are increasingly pricing in the possibility that the Bank of Japan (BoJ) will continue raising interest rates later this year, particularly following positive wage data from Japan’s spring labor negotiations. The results of the negotiations, which showed broad agreement for strong wage increases, are expected to boost consumer spending and support higher inflation, potentially providing the BoJ with room to further tighten monetary policy. This could limit the Yen’s decline, as higher rates from the BoJ would make Japanese assets more attractive to investors.

However, any further weakening of the Yen may face resistance, given the divergence in monetary policy expectations between the BoJ and the Federal Reserve. While the BoJ may continue its rate hikes, the Federal Reserve is expected to keep its policy accommodative, with traders pricing in the possibility of 25 basis point rate cuts at upcoming meetings in June, July, and October. This is primarily due to concerns over the potential economic impact of President Donald Trump’s trade tariffs, signs of a cooling labor market in the US, and easing inflationary pressures. These factors may limit the strength of any US Dollar recovery, keeping USD/JPY capped in the short term.

Data from the US Census Bureau released on Monday showed that retail sales in the US grew by just 0.2% in February, far below expectations for a 0.7% increase. This follows a downwardly revised decline of 1.2% in January and suggests that US consumers are exercising caution amid concerns about economic headwinds. This disappointing retail sales figure adds further weight to the argument that the Fed may soon resume its rate-cutting cycle, potentially limiting the extent of any further strength in the USD.

Looking ahead, the focus of traders will be on key economic data from the US set for release on Tuesday, including building permits, housing starts, and industrial production. These figures will provide further clues about the state of the US economy and may influence market expectations for the Fed’s policy stance. However, all eyes will be on the central bank decisions scheduled for Wednesday, with both the BoJ and Fed set to make important policy announcements. The BoJ is expected to keep its monetary policy stance relatively accommodative, while the Fed may signal the possibility of rate cuts in the coming months. The outcome of these decisions will be pivotal in determining the next directional move for the USD/JPY pair.

Technical Analysis

From a technical standpoint, USD/JPY has recently broken above a key horizontal resistance level, marking a bullish breakout from a downtrend channel. This breakout suggests a potential reversal in the pair’s price action, and if the current uptrend continues, the next resistance zone to watch will be around 151.00. The formation of higher lows (HLs) on the chart indicates a shift toward an uptrend, with the pair poised to move higher if the price holds above current levels.

Traders should keep an eye on any retests of the breakout level for confirmation that the uptrend is sustainable. If the price holds at the breakout point and continues to move upward, USD/JPY could target the 152.00 resistance zone as the next key level. However, the key event risks in the coming days, particularly the BoJ and Fed decisions, could cause significant volatility in the pair.

TRADE RECOMMENDATION

BUY USDJPY

ENTRY PRICE: 149.50

STOP LOSS: 147.60

TAKE PROFIT: 152.00

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