• The dollar lost around 1.3% against the yen last week.

• News outlets revealed a high chance for a 50 bps Fed rate cut.

• The Bank of Japan will meet on Friday.

The USD/JPY forecast indicates further declines for the dollar due to a surge in Fed rate cut expectations. At the same time, the yen was on the front foot as investors looked forward to the Bank of Japan policy meeting.

The dollar lost around 1.3% against the yen last week after reports that the Fed might consider a more significant rate cut at this week’s meeting. Initially, markets were convinced that policymakers would vote for a 25 bps cut. Inflation was slightly higher than expected, and the labor market was not in such a terrible shape. Therefore, the US central bank could afford to start cutting rates slowly.

However, this outlook shifted on Friday when news outlets revealed a high chance for a 50 bps rate cut. Consequently, investors moved to price a higher chance for such an outcome, weighing on the dollar. By Monday, investors were pricing a 59% of a 50 bps rate cut. At the same time, total cuts in 2024 rose to 125 bps.

The Fed is poised to cut rates on Wednesday. However, traders are still betting between a 25 and a 50 bps rate cut. Therefore, whichever size the central bank picks will likely increase market volatility.

On the other hand, the Bank of Japan is set to meet on Friday this week. Although the BoJ might keep rates unchanged, the messaging might be hawkish. Recent remarks from policymakers have shown that they are willing to keep hiking interest rates.

USD/JPY key events today

With a holiday in Japan and no key events in the US, the price might extend last week’s move.

USD/JPY technical forecast: Bullish RSI divergence fails

On the technical side, the USD/JPY price has made a new low in the downtrend after breaking below the 141.01 support level. This has strengthened the bearish bias as the price has fallen well below the 30-SMA with the RSI in the oversold region.

Previously, the price had paused at the 141.01 level. Here, the RSI indicated a bullish divergence, signaling a reversal. However, when bulls took over, they failed to breach the 30-SMA, a sign that bears remain in the lead. This downtrend might soon reach the 139.02 support level.

https://www.forexcrunch.com/blog/2024/09/16/usd-jpy-forecast-140-0-broken-amid-rising-fed-rate-bets/