• The gap in interest rates between Japan and the US will likely continue for a while.

• The Federal Reserve is not yet confident enough to start cutting interest rates.

• The Bank of Japan is taking a cautious approach to rate hikes.

The USD/JPY price analysis leans bullish as the yen slides against the dollar despite stern warnings from Japanese authorities. Although the recent dollar-selling intervention boosted the yen, market fundamentals still support a decline.

The interest rate differentials between Japan and the US remain the most significant contributor to the yen’s weakness. Moreover, the outlook for interest rates in Japan and the US shows that the gap in interest rates will likely continue for a while.

The Federal Reserve is not yet confident enough to start cutting interest rates. Meanwhile, the Bank of Japan is taking a cautious approach to rate hikes. Currently, the gap in interest rates between Japan and the US is 370 basis points. Consequently, the dollar will remain more appealing to investors than the yen.

Meanwhile, on Tuesday, Japan’s Finance Minister Masato Kanda said that the government would continue taking the same strict approach to sharp yen declines. In other words, Japan might intervene again to support its currency.

Elsewhere, the US jobs report failed to give the yen a boost as the dollar fell. Notably, employment fell more than expected in April, while the unemployment rate jumped. This was a positive sign for the Fed. However, it was not enough for policymakers to conclude that inflation would reach the 2% target.

USD/JPY key events today

Neither the US nor Japan will report high-impact news today. As a result, the pair might make small moves.

USD/JPY technical price analysis: Channel resistance

On the technical side, the USD/JPY price has broken above the 154.01 key resistance level to continue the recent recovery. At the same time, the RSI trades slightly above 50, indicating stronger bullish momentum. However, the bearish bias remains since the price sits below the 30-SMA. Moreover, it still trades within its bearish channel.

Currently, the price is nearing a solid barrier comprising the 30-SMA and the channel resistance. Bears will emerge and target the 151.01 support level if the barrier holds firm. On the other hand, if it gives way, the bias will change to bullish, with the next target at 158.00.

https://www.forexcrunch.com/blog/2024/05/07/usd-jpy-price-analysis-yen-falls-despite-stern-boj-warnings/