- The Bank of Japan's policy decision will be closely scrutinized this week for clues on the future path of Japanese interest rates.
- The BoJ will unveil its latest economic forecasts, a little over a month after its first-rate hike since 2007.
In addition, USD/JPY will be closely watching the release of the US Federal Reserve's preferred inflation gauge, the PCE price index. Before that, the price of the US dollar against the Japanese yen (USD/JPY) stabilized around its highest level in 34 years, with gains that extended towards the resistance level of 154.78. Before closing last week’s trading, the pair stabled around 154.60, and in the same session it collapsed for a short time to the support level 153.58.
With expectations largely tilted towards the BoJ maintaining its policy stance after freezing its massive easing program, economists and investors will be dissecting the BoJ's outlook and characterization of inflation risks for any hints on the pace of future rate hikes.
Meanwhile, the ongoing weakness in the yen will add another layer of tension as Governor Kazuo Ueda holds a press conference after Friday's decision.
According to the platforms of Forex currency trading companies, currency markets have become completely risk-averse amid fears of the expansion of the conflict in the Middle East, with traders rushing to search for safe havens in both spot transactions and options. Accordingly, the price of the US dollar rose against all G10 currencies except the Swiss franc and the Japanese yen on Friday, after reports that Israel launched a retaliatory strike on Iran. The Bloomberg Dollar Spot Index rose for the seventh day in eight days.
Also, options indicate a rush to safe havens. Risk reversals, a measure of market condition and sentiment, show that traders are the most bullish on the Swiss franc against the euro since late 2022. Demand for options that pay if the yen strengthens against the dollar rose this week to the highest level since July.
Israeli retaliation, according to American officials, comes less than a week after Tehran launched missiles and drones. Iranian media appeared to downplay the significance of the incident in the hours following the initial reports. Thus, these developments fuelled volatility in oil-linked currencies as the price of crude oil briefly rose above $90 per barrel. Moreover, the cost of a one-week hedging on the Canadian dollar rose by the most in 15 months on Friday, while the volatility of the Norwegian krone headed for its second-largest gain this year.
Furthermore, there is demand for the US dollar, with one-month risk reversals for the Bloomberg Dollar Spot Index trading near a one-year high.
USD/JPY Technical analysis and Expectations Today:
The price of the USD/JPY currency pair has now risen to trade a few levels above the 100-hour moving average line. As a result, it appears that the currency pair is about to enter the overbought levels of the RSI on the 14-hour frame. In the near term, and according to the performance on the hourly chart, it appears that the USD/JPY currency pair is trading within an ascending channel. The 14-hour RSI also appears to be supporting a short-term uptrend as it approaches overbought conditions. Therefore, the bulls will target extended gains at around 154.80 or higher at 155.40 resistance. On the other hand, the bears will look to pounce on pullbacks at around 154.30 or lower at the 153.90 support.
In the long term, and according to the performance on the daily chart, it appears that the USD/JPY currency pair is trading within an upward channel. Also, the 14-day RSI appears to support a long-term bullish bias after rising to overbought levels. Therefore, the bulls - the bulls - will look to extend the current rally towards 156.02 or higher to the 157.43 resistance. On the other hand, the bears will target long-term profits at around 153.15 or lower at the 151.00 support.
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