- Strong signals from the Bank of Japan regarding future interest rate hikes, coupled with the US dollar's decline against other major currencies following the official approval of US tariffs, helped bears push the USD/JPY currency pair towards the support level of 148.40 before stabilizing around 148.90 at the time of writing the analysis.
- The currency pair has given up its gains from the start of the week, which reached the resistance level of 151.30.
- Furthermore, the USD/JPY pair may continue to decline until the reaction to the announcement of US job numbers at the end of the week.
Bank of Japan Policies Support Strong Yen Gains
There is no doubt that, according to currency market trading on licensed Forex trading companies' platforms, the Japanese Yen's gains have increased to their highest in five months amidst hawkish comments from a senior Bank of Japan official. Bank of Japan Deputy Governor Shinichi Uchida stated that the central bank would raise interest rates further if its economic forecasts are met, emphasizing that the exit from the intensive monetary easing program has not just begun. The official also stressed that monetary conditions remain very accommodative, noting that the Bank of Japan's reduction of Japanese government bond holdings has been limited.
Meanwhile, the latest data showed that Japan’s services sector grew at its fastest pace in six months in February, driven by strong demand.
Globally, the Japanese yen was pressured by growing trade concerns after new U.S. tariffs on Canada, Mexico and China took effect this week, prompting retaliatory measures from those countries.
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Watch the dollar decline against the Japanese yen to seize new buying opportunities, but always remember not to take risks.
A look at the policies of the Japanese central bank
At its latest meeting, the Bank of Japan raised its key short-term interest rate by 25 basis points to 0.5%, the highest level in 17 years, in line with market consensus. This move reflects the momentum of wage increases and steady progress in inflation. It also represents the third-interest rate hike since the Japanese central bank ended negative interest rates in March 2024. The central bank also indicated plans for further price increases and scaling back monetary support if economic data and prices match its expectations.
Friday's decision was passed by a majority of 8-1, with board member Nakamura dissenting. At the same time, in its quarterly forecast, the Bank of Japan raised its core inflation forecast to 2.7% for fiscal 2024 from October's estimate of 2.5%, citing a growing labour shortage. Moreover, the Bank of Japan also expected core inflation to decline to 2.4% in fiscal 2025 and 2.0% in fiscal 2026.
At the same time, the central bank lowered its GDP growth forecast for 2024 slightly to 0.5% from the previous figure of 0.6%. Growth forecasts remain at 1.1% for fiscal 2025 and 1.0% for fiscal 2026.
USD/JPY Technical Analysis and Expectations Today:
According to trading via the daily chart, the general downward trend for the USD/JPY pair is getting stronger and breaking the support of 148.00 may be possible. If this happens, the technical indicators may start giving strong oversold signals from the Relative Strength Index and the MACD indicator. Currently, the closest support levels for the currency pair are 148.00, 147.20 and 146.00, respectively. We still prefer to buy the dollar against the Japanese yen, but without risk and dividing the trading volume on separate support levels. On the other hand, and for the same time period, the resistance of 152.50 will remain the most important to break the current bearish outlook for the currency pair.
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