• The likelihood of a 50 bps Fed rate cut in September fell amid better-than-expected data.

• This week, traders will watch the Jackson Hole symposium.

• Bank of Japan governor Kazuo Ueda will speak on Friday.

The USD/JPY forecast points to solid bearish momentum as the yen rallies on divergence in policy outlook for the Bank of Japan and the Fed. Fed policymakers will likely assume a dovish tone and support expectations for a rate cut in September. On the other hand, BoJ policymakers have taken a hawkish tone, which could indicate that more rate hikes will come.

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The yen has rallied since Friday as Fed rate cut expectations rose. At the same time, investors took profits on the recent dollar rally, weakening the greenback. Last week, the likelihood of a 50 bps Fed rate cut in September fell amid better-than-expected data. However, that of a smaller cut increased. Markets are currently fully pricing a 25 bps rate cut in September. Although the rate-cutting cycle might be gradual, it will likely start next month. Consequently, the dollar might remain fragile.

This week, traders will watch the Jackson Hole symposium, during which Powell might drop hints on the Fed’s policy path. Experts believe the Fed Chair might signal the start of rate cuts in September. At the same time, the FOMC policy meeting minutes will show what went into the last decision to hold interest rates.

Meanwhile, in Japan, the central bank has started hiking interest rates and could do so again. Bank of Japan governor Kazuo Ueda will speak on Friday. A hawkish tone will further highlight the divergence in policy outlooks between Japan and the US.

USD/JPY key events today

Traders do not expect high-impact economic data from the US or Japan. Consequently, the pair might extend last week’s move.

USD/JPY technical forecast: Bearish turn puts 142.56 in bears’ sights

On the technical side, the USD/JPY price has broken below the 30-SMA, indicating a bearish sentiment shift. At the same time, the price has fallen below its bullish trendline and the 0.382 Fib level. In the previous move, bulls had set their sights on the 150.03 resistance level and the 0.618 Fib. However, before the price got there, there was a whiplash move that saw bears taking over.

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The RSI now trades below 50, supporting bearish momentum. Therefore, the price might continue falling to the 142.56 support level.

https://www.forexcrunch.com/blog/2024/08/19/usd-jpy-forecast-yen-gains-amid-boj-fed-divergence/