USD/JPY Forecast: The Bank of Japan and Fed Speakers Under the Spotlight

Highlights

• The USD/JPY rallied 0.76% on Thursday, ending the session at 149.303.
• Bank of Japan comments tilted monetary policy divergence toward the US dollar.
• On Friday, the Bank of Japan and the Fed remain focal points.

USD/JPY Movement on Thursday

The USD/JPY rallied 0.76% on Thursday. Following a 0.16% gain on Wednesday, the USD/JPY ended the day at 149.303. The USD/JPY fell to a low of 147.928 before rising to a Thursday high of 149.477.

The Bank of Japan Remains Under the Spotlight

On Friday, investors must continue to track Bank of Japan speeches. Market bets on a Bank of Japan pivot from negative rates supported a USD/JPY return below the 141 handle in late December. However, a non-committal Bank of Japan and a hawkish Fed bring 150 back into play.

On Thursday, the Bank of Japan poured cold water on bets the Bank of Japan would move aggressively to achieve a new monetary policy normalization. Bank of Japan Deputy Governor Shinichi Uchida stated on Thursday that conditions almost favor a shift away from ultra-loose monetary policy.

However, Deputy Governor Uchida warned that the Bank would not rapidly hike rates while signaling an April pivot.

On Friday, Bank of Japan commentary could further impact the USD/JPY. The markets have cemented a Bank of Japan pivot from negative rates. However, the rate path remains unclear. A dovish rate path could leave the Yen under pressure.

There are no economic indicators for investors to consider on Friday.

Fed Speakers in Focus

On Friday, investors must track Fed speakers throughout the session. This week, FOMC members Thomas Barkin, Susan Collins, Neel Kashkari, Adriana Kugler, and Loretta Mester called for patience on raising interest rates.

In response, the markets have reduced the bets on a March Fed rate hike, refocusing on the May interest rate decision.

FOMC member views that deviate from recent Fed speeches could move the dial. However, recent US economic indicators, including the US Jobs Report and ISM Services PMI Survey, leave the hawks in the driving seat.

According to the CME FedWatch Tool, the probability of a March Fed rate cut fell from 38.0% to 18.5% this week. Significantly, the chances of the Fed leaving interest rates at 5.50% in May increased from 6.2% to 37.3%.

There are no US economic indicators to influence the USD/JPY on Friday.

Short-term Forecast

Near-term trends for the USD/JPY remain hinged on Bank of Japan forward guidance and US economic indicators. Weaker-than-expected US economic indicators could signal a shift in the macroeconomic environment and refuel bets on a Fed rate cut.

USD/JPY Price Action

Daily Chart

The USD/JPY remained above the 50-day and 200-day EMAs, affirming bullish price signals.

A USD/JPY return to the 150 handle would support a breakout from the 150.201 resistance level. A breakout from the 150.201 resistance level would bring the 151.889 resistance level into view.

On Friday, Bank of Japan and Fed commentary need consideration.

However, a fall through the 148.405 support level would give the bears a run at the 50-day EMA and the 146.649 support level.

The 14-day RSI at 63.34 suggests a USD/JPY move to the 150.201 resistance level before entering overbought territory.

4-Hourly Chart

The USD/JPY sat above the 50-day and 200-day EMAs, reaffirming the bullish price signals.

A USD/JPY break above the 149.500 handle would support a move to the 150.201 resistance level.

However, a drop below the 149 handle would give the bears a run at the 148.405 support level and the 50-day EMA.

The 14-period 4-hour RSI at 68.49 suggests a USD/JPY move to the 150.201 resistance level before entering overbought territory.