• Japan’s conditions align for the Bank of Japan to start hiking interest rates.
• Policymakers expect significant pay increases in Japan.
• The likelihood of a Fed rate cut in June rose above 70%.

The USD/JPY forecast reveals a bearish sentiment on Monday as markets gain confidence that the BoJ might reverse its policy this month. As a result, the yen is gaining against the dollar. At the same time, there’s more confidence that the Fed will cut rates in June, weakening the dollar.

Notably, conditions in Japan align for the Bank of Japan to start hiking interest rates. First, the economy is faring much better than expected. Moreover, it avoided a recession in the fourth quarter. Second, policymakers expect significant pay increases when wage negotiations conclude on Wednesday. Pay increases put money in consumer pockets, driving spending and inflation. Consequently, there is an increasing chance the BoJ will hike on 19th March.

On the other hand, the dollar weakened on Friday after the US employment report revealed cracks in the labor market. Although employment in the US rose in February, the unemployment rate beat forecasts, implying weaker demand. Consequently, the likelihood of a rate cut in June rose above 70%.

As the BoJ prepares to hike interest rates, the Fed gains more confidence that inflation is on a downtrend. Therefore, rates will likely start declining in the US. Again, the BoJ is playing on the opposite side of the field. This policy divergence was the major cause of the yen’s recent weakness. However, the current policy divergence might allow the yen to recover most of its lost value.

USD/JPY key events today

It might be a slow day for the pair, as the calendar lacks major economic events that might cause volatility.

USD/JPY technical forecast: Price poised for 100% retracement of previous trend

On the technical side, the USD/JPY price has hit its first and second targets. Therefore, the price might soon retrace 100% of the previous uptrend. The price is currently on a steep downtrend, breaking below major support levels without pause.

The decline is so strong that the price has not pulled back even once to retest the 30-SMA resistance. Furthermore, the RSI has entered the oversold region, indicating solid bearish momentum. Therefore, the price might soon reach the 146.01 key support level, representing 100% retracement of the previous trend.

https://www.forexcrunch.com/blog/2024/03/11/usd-jpy-forecast-yen-bullish-on-boj-policy-reversal-prospects/