- The USD/JPY forecast edges lower as the BoJ’s Ueda left hawkish remarks.
- The BoJ hinted at rate hikes to prevent a resurgence in inflationary pressure.
- With Fed easing, the central bank divergence continues to favor the USD/JPY bears in the near term.
The USD/JPY forecast remains slightly lower on Monday as the pair slipped to mid-155.00 following hawkish signals from BoJ’s Ueda. His comments have strengthened the expectations that the central bank could raise interest rates in December or January, narrowing the yield spread that drove the yen weakness throughout the year.
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Ueda stressed that the probability of Japan’s inflation and growth materializing is gradually increasing. He also warned that delaying rate hikes for an extended period could reignite inflation, ultimately forcing a disruptive policy adjustment. He further added that the BoJ plans to assess the rate hike scenarios in its next meeting and will elaborate on the future path once the rate reaches 0.75%.
Bond markets swiftly reacted, with 2-year JGBP yields hitting 1% for the first time since 2008, while 20-year yields reached the highest level since 2020. Additional support for the yen came from the November Composite PMI data, which rose to 52.0, reflecting a modest improvement in private sector activity.
On the US side, the Dollar struggles to find upside momentum as the dovish Fed commentary has pushed the Dollar Index to 2-week lows. The market participants are increasingly pricing in another rate cut this month. The Fed-BoJ divergence continues to favor yen bulls.
Broad market sentiment remains cautious at the beginning of December, adding further strength to the yen’s demand as a safe haven. Investors are also monitoring the political uncertainty ahead of a potential succession to Fed Chair Powell. Reports that White House adviser Kevin Hassett is a leading candidate are also weakening the dollar further.
Despite the recent drop in USD/JPY, the analyst views the yen’s strength as being capped in the medium term, as the US-Japan yield spread remains wide, even after narrowing to its tightest point since April 2022.
USD/JPY Key Events Ahead
Moving ahead, the major data release on the day is the US ISM Manufacturing PMI. Later this week, the US labor data and other key releases could provide fresh impetus.
USD/JPY Technical Forecast: Oversold Conditions
The USD/JPY 4-hour chart shows a bearish momentum strengthening below the key MAs. The price is gradually heading to test the 200-period MA near 154.00. The level coincides with the 14th November lows as well. However, the RSI is approaching the oversold area, suggesting a mild consolidation.
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On breaking the 200-period MA, the price could slip further to 152.80 ahead of 151.50. On the upside, sustaining above the 155.50 level could attract buyers and look to test the 20-period MA near 156.20 ahead of the 50-period MA around 156.50.
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