USD/JPY Forecast: Bullish as Investors Resume Yen Carry Trades

USD/JPY Highlights

• Dollar/Yen nears highest level this year
• Dovish BOJ policy signals to investors to resume Yen carry trades
• Fed expected to raise interest rates by 25 basis points

USD/JPY Overview

On Tuesday, the Dollar/Yen pair showed a slight uptick due to the Bank of Japan’s (BOJ) continued dovish stance. The Japanese Yen remained under pressure following the central bank’s decision last week to keep interest rates at an extremely low level. Meanwhile, the dollar gained 0.23%, reaching 137.78 yen – a level not seen since March 8. If the pair surpasses 137.90, it will mark the highest level reached this year.

At 09:57 GMT, the USD/JPY is trading $137.490, up 0.009 or +0.01%. On Monday, the Invesco CurrencyShares Japanese Yen Trust ETF (FXY) settled at $67.70, down $0.65 or -0.95%.

BOJ’s Dovish Stance Boosts Carry Trade

The indication from the BOJ that it will maintain its negative interest rate policy for the foreseeable future has signaled to speculators that it is safe to resume Yen carry trades. With this in mind, investor U.S. Dollar investors have been pounding the Japanese Yen since Friday’s BOJ meeting.

Carry trades involve borrowing in currencies with low interest rates to invest in those with higher rates. Due to Japan’s near-zero interest rates, the Yen has traditionally been a popular currency for funding such trades.

Fed’s Likely Rate Hike Increases Dollar Appeal

Furthermore, the likelihood of the Fed continuing to raise rates instead of cutting them has increased, leading to a wider spread between US and Japanese government bonds. This trend is making the US Dollar a more appealing investment option.

The Federal Reserve is set to convene for its latest meeting on Tuesday, and investors are eagerly anticipating its policy decisions and guidance to be announced on Wednesday. The central bank is expected to raise interest rates by another 25 basis points.

Investors will also be closely monitoring the meeting for any indications of when rate hikes may be paused or when rate cuts may begin. Following the Fed’s previous meeting, officials suggested that rates may need to remain elevated for a longer period due to persistent high inflation.

March JOLTs Figures Expected Today

On the data front, JOLTs job openings figures for March are expected on Tuesday and could provide further insights into the state of the U.S. economy.

Technical Analysis

From a daily technical viewpoint, the USD/JPY is trading above its daily PIVOT at $134.518, indicating strength, but it has not surpassed resistance (R1) at $138.452 yet. This level is another potential trigger point for an acceleration to the upside with (R2) at $140.498 the next target.

The short-term and long-term trends are moving higher, and a sustained upward move above the PIVOT shows buyers present. A move below the PIVOT would weaken the USD/JPY, making support (S1) at $132.471 the next target.

For a look at all of today’s economic events, check out our economic calendar.