• Bank of Japan policymakers have shifted their tone to a less hawkish one.

• Most economists expect the central bank to cut borrowing costs before the year ends.

• The dollar surged Wednesday after the ADP employment figures came in higher than expected.

The USD/JPY outlook shows a shift in sentiment regarding Bank of Japan rate hikes after slightly dovish remarks that weakened the yen. At the same time, the US dollar firmed after private employment figures showed a resilient labor market.

Bank of Japan policymakers have shifted their tone to a less hawkish one. Notably, board member Asahi Noguchi said the central bank should implement a cautious approach to hikes to avoid hurting the economy. Meanwhile, Prime Minister Shigeru Ishiba said the economy was unprepared for higher borrowing costs.

Initially, policymakers were enthusiastic about higher consumption and inflation. As a result, most of them, including Ueda, voiced support for more rate hikes, which supported the yen. The recent change will likely keep downward pressure on Japan’s currency. However, economists expect the central bank to cut borrowing costs before the year ends.

Meanwhile, the dollar surged Wednesday after the ADP employment figures came in higher than expected, indicating a tight labor market. Private firms employed 143,000 more workers in September. Economists had expected 124,000 new jobs. This report came after job openings which increased more than expected. Resilience in the labor market supports a slow Fed easing cycle. Therefore, the likelihood of a 50-bps rate cut in November fell.

The next report on monthly employment change might reshape the outlook for rate cuts. Another upbeat report will solidify bets for a smaller rate cut in November.

USD/JPY key events today

• US unemployment claims
• US ISM services PMI

USD/JPY technical outlook: Channel resistance

On the technical side, the USD/JPY price has paused near its bullish channel resistance line. It trades far above the 30-SMA, a sign that bulls have firm control. At the same time, the RSI is in the overbought region, showing solid bullish momentum.

USD/JPY has made a series of higher highs and lows that have formed a strong uptrend. However, after a solid run, bulls might pause at the channel resistance, allowing bears to return. In such a case, the price will likely collapse to revisit the channel support before bouncing higher or breaking below.

https://www.forexcrunch.com/blog/2024/10/03/usd-jpy-outlook-boj-signals-caution-on-rate-hikes/