- Since the start of trading this week, the price of the USD/JPY currency pair has been trying to compensate for losses due to the weakness of the expectations of the US interest rate hike, which moved the currency pair with strong selling operations towards the support level 137.23, its lowest in two months.
- The rebound gains this week extended to the psychological resistance level 140.00 before it collapsed.
- It settled around 139.66 at the time of writing, waiting for more stimulus.
The Japanese government raised its overall inflation forecast to 2.6% for the current fiscal year ahead of the central bank's policy decision meeting next week, the Cabinet Office said Thursday. The upward revision from the previous forecast of 1.7% shows stronger-than-expected inflationary pressures. Japan saw this trend continue even after factoring in the government's price-easing measures, which the Japanese Cabinet Office says cut 0.5 percentage points from this year's price reading.
And for the 2024 fiscal year, the Japanese government expects headline inflation to slow to 1.9%. Forecasts relate to annual changes in overall consumer prices, which amounted to 3.2% in May. June data is due on Friday, with analysts expecting the reading to remain at the same level.
The projections come ahead of the Bank of Japan's final policy meeting at the end of next week, at which investors are closely watching any policy shifts. Until last month, many economists were linking a possible upward revision of the central bank's rate forecasts to the change in policy, but fewer analysts see that as likely in the latest poll. This time the Bank of Japan is said to have raised its inflation forecast above 2% for this fiscal year, but their view for the following year is expected to remain largely unchanged, likely indicating that the central bank may refrain from any major change this time around.
The Bank of Japan has maintained its aggressive monetary easing policy in an effort to bring the main measure of inflation - consumer prices excluding fresh food - above its 2% target. Earlier this week, Bank of Japan Governor Kazuo Ueda indicated that he would take a shift in the bank's assessment of achieving its inflation target firmly to change its stance of continuing monetary easing.
USD/JPY Technical Outlook
As I mentioned before, the stability of the price of the USD/JPY currency pair will remain above the psychological resistance of 140.00, important for the bulls to move prices upwards. The next most important station will be at 141.50, so the performance withdrawal on the daily chart below will end the current downside look and the upward trend will return strongly by the end of last month. The currency pair jumped toward the resistance level at 145.00. Negative interest is in favor of the eventual rise of the currency pair.
On the other hand, and for the same period of time, the hopes for the rise will evaporate if the USD/JPY pair stabilizes below the support level at 137.00. Today, the currency pair will interact with the announcement of the number of weekly jobless claims, the reading of the Philadelphia Industrial Index and the existing US home sales.
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