• There was a sharp improvement in US consumer confidence from 97.5 to 102.0 in May.

• US yields rose, leading to a decline in the yen.

• BoJ’s Seiji Adachi said the central bank could hike rates due to the weak yen.

The USD/JPY forecast is bullish despite fluctuations amid rising US yields and hawkish Bank of Japan comments. The pair initially reached a 4-week high as the dollar and US yields rose. However, it pulled back after a BoJ policymaker signaled the chance of a rate hike in the near future.

Data on Tuesday revealed a sharp improvement in US consumer confidence from 97.5 to 102.0 in May. This led to a rally in the dollar due to a drop in Fed rate cut expectations. At the same time, yields rose, leading to a decline in the yen. A robust economy means the Fed will hold on to high interest rates for longer. This, in turn, will widen the interest rate gap between Japan and the US.

However, the yen strengthened slightly after BoJ board member Seiji Adachi said the central bank could hike rates if a weak yen led to higher inflation and inflation expectations. Notably, Japan’s currency has lost over 10% of its value this year despite the first BoJ rate hike in March. This decline has come from interest rate differentials between Japan and the US. Even interventions by the Bank of Japan have only temporarily impacted the yen. Analysts expect another BoJ hike in July.

Meanwhile, a survey showed poorer consumer sentiment in Japan in May. The Bank of Japan’s plans to hike rates continue to face challenges as data shows weak economic demand.

USD/JPY key events today

Neither the US nor Japan will release high-impact events today. Therefore, investors will keep absorbing recent data.

USD/JPY technical forecast: Bulls remain weak above 156.50

On the technical side, the USD/JPY price trades between the 156.50 support and the 158.01 resistance levels. Moreover, it has maintained its position above the 30-SMA, supporting a bullish bias.

However, momentum has remained weak, with the price staying close to the SMA and the RSI failing to reach overbought levels. If this shallow trend continues, the price will reach the 158.01 resistance. On the other hand, if bulls give up control, it will break below the SMA and the 156.50 support level.

https://www.forexcrunch.com/blog/2024/05/29/usd-jpy-forecast-retracement-amid-hawkish-boj/