The Japanese Yen (JPY) is riding a wave of recovery against the US Dollar (USD), boosted by the Bank of Japan’s (BoJ) unexpectedly hawkish policy announcements. The BoJ surprised markets by raising the short-term rate target and outlining a plan to taper Japanese government bond (JGB) purchases.
BoJ Governor Kazuo Ueda explained the rationale behind this move, citing the need to achieve a sustainable 2% inflation target and signaling a potential continuation of rate hikes. This hawkish stance has further strengthened the Yen, with Mitsubishi UFJ Bank also announcing an upcoming increase in its short-term prime lending rate.
Market Focus:
The US Dollar faces challenges ahead of the Federal Reserve’s (Fed) impending interest rate decision. While no change is expected in July, growing speculation of a September rate cut is putting pressure on the greenback. Market participants are closely watching for signals from the Fed regarding the timing and magnitude of potential rate cuts.
Economic Data and Commentary:
Recent economic data from Japan, including retail sales and unemployment figures, have been generally positive, further supporting the Yen’s strength. Additionally, remarks from Japanese officials highlighting the negative impacts of a weak Yen and urging caution in policy-making have contributed to the currency’s upward trajectory.
Technical Analysis:
The USD/JPY pair has broken below the crucial 200-day Simple Moving Average (SMA) and is testing the 150.00 psychological level. The bearish crossover of the 21-day and 50-day SMAs has fueled the Yen’s rally.
However, the 14-day Relative Strength Index (RSI) indicates that the pair is deeply oversold, suggesting a potential pullback. In this scenario, immediate resistance is expected at the 200-day SMA, followed by the intraday high of 153.91 and the 100-day SMA.
A daily close below 150.00 could signal a fresh downtrend, potentially leading to a retest of the March low near 146.50.
