The Japanese yen has shown a remarkable strengthening against the US dollar, with the USD/JPY pair dropping to 143.99 on Monday, marking a three-week low. This movement is primarily attributed to the weakening of the US dollar and significant pronouncements from both the Bank of Japan (BOJ) and the US Federal Reserve.
The recent hawkish comments from Kazuo Ueda, the Governor of the Bank of Japan, have generated considerable market attention. Last Friday, Ueda hinted that the BOJ might adjust its monetary policy if economic forecasts align with current trends. The market interpreted this statement as a potential precursor to an interest rate hike, especially considering that Japan’s core consumer price index rose for the third consecutive month to 2.7% in July, with overall inflation holding steady at 2.8%.
Conversely, Jerome Powell, Chair of the US Federal Reserve, adopted a more dovish stance, indicating that it might be time to revise US monetary policy due to increasing risks to the labor market. This suggests that the Fed could begin easing monetary policy as soon as September, a move that stands in stark contrast to the potential tightening in Japan.
These shifts in monetary policy outlooks have significantly shaped forex forecasts for the USD/JPY pair. The USD/JPY formed a consolidation range around the 146.70 level before moving downward to 143.50. A temporary rise to 144.55 is possible, but a further decline to 142.88 could follow. The MACD indicator supports this bearish outlook, with its signal line below zero and trending downward.
The pair has completed a downward structure to 143.44. A corrective move towards 144.55 is possible, potentially extending to 145.70 as a test from below. Following this, a decline to 142.88 might occur. The Stochastic oscillator, currently above 50, suggests a rise to 80 before the next downward phase.
The USD/JPY pair is experiencing downward pressure due to a combination of USD weakness and potential monetary policy adjustments from the BOJ. As market dynamics evolve with central bank policies and economic indicators, the yen could see further gains if the BOJ shifts towards a tighter monetary stance in response to rising inflation.
