• Investors increased bets on a BoJ rate hike next week.

• US GDP figures for Q2 came at 2.8%, well above the 2.0% forecast.

• Investors await the Bank of Japan and Fed policy meetings.

The USD/JPY weekly forecast is bearish, with investors increasingly betting on a Bank of Japan rate hike at next week’s meeting.

Ups and downs of USD/JPY

The USD/JPY pair had a bearish week, where the yen found its feet against the dollar. The rally in the yen came as investors increased bets on a BoJ rate hike at next week’s policy meeting. The rate hike optimism kept the dollar at bay despite better-than-expected economic data.

Notably, US business activity increased in June as the services sector expanded. Meanwhile, GDP figures for Q2 came in at 2.8%, well above the 2.0% forecast. Additionally, unemployment claims in the US fell last week, indicating a still robust labor market. Finally, the core PCE index came in line with expectations, rising by 0.2% m/m.

Next week’s key events for USD/JPY

Next week, USD/JPY will experience a lot of volatility with the Bank of Japan and Fed policy meetings. At the same time, the US will release key manufacturing and employment data. Notably, there is a 67.2% chance that the BoJ will hike rates by 10bps next week. If this happens, the yen might strengthen, pushing USD/JPY lower.

Meanwhile, the Fed will likely keep rates unchanged. However, given the recent decline in inflation, policymakers might take a more dovish stance.

Elsewhere, the US nonfarm employment report will continue shaping the outlook for Fed rate cuts. Easing in the labor market will give policymakers more confidence to cut in September.

USD/JPY weekly technical forecast: Signaling a strong downtrend

On the technical side, the USD/JPY price has broken below its bullish trendline and is approaching the 152.01 support level. Moreover, the RSI has crossed below 50, indicating a bearish sentiment shift.

The price was in an uptrend with higher highs and lows for a long time. However, this changed when the price broke below the previous low to make a lower low. There is a high chance it will also make a lower high next week. A downtrend would allow bears to retest the 152.01 and 146.50 support levels.

https://www.forexcrunch.com/blog/2024/07/27/usd-jpy-weekly-forecast-bearish-amid-boj-rate-hike-odds/