The USD/JPY pair is showing signs of a potential rebound leading up to the Bank of Japan (BoJ) meeting. The central bank is widely anticipated to maintain its current interest rate policy.
USD/JPY is currently trading near its weekly high (149.20). Despite a weaker-than-expected U. of Michigan Confidence survey (57.9 in March vs. 63.1 forecast), the exchange rate may attempt to recover from its recent decline from the monthly high (151.31). The Relative Strength Index (RSI) remains above oversold territory, further supporting this potential rebound.
Key Points:
- USD/JPY trading near weekly high.
- U. of Michigan Confidence survey misses expectations.
- RSI remains out of oversold territory.
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The RSI's movement away from oversold conditions suggests a possible abatement of bearish momentum. The upcoming BoJ rate decision could further support USD/JPY if the central bank signals a continuation of its gradual approach to normalizing monetary policy.
BoJ's Expected Stance
The BoJ is expected to maintain its benchmark interest rate at 0.50%, following a 25bp rate hike in January. The central bank may adopt a wait-and-see approach, considering the uncertainties surrounding US trade policy and its potential impact on global growth.
If the BoJ refrains from signaling an imminent rate hike, USD/JPY could extend its rebound from the monthly low (146.54). However, if Governor Kazuo Ueda and his team reiterate their intention to raise the policy interest rate based on the January Outlook Report, it could weigh on the exchange rate.
Potential Scenarios:
- BoJ Holds Steady: USD/JPY rebound extends.
- BoJ Hints at Future Hikes: USD/JPY faces downward pressure.
Shifts in the carry trade dynamic may continue to influence USD/JPY, especially as the Federal Reserve gradually unwinds its restrictive monetary policy. The recent rebound in USD/JPY could be temporary, particularly if the 50-Day SMA (152.84) continues to exhibit a negative slope.
USD/JPY Technical Analysis
USD/JPY appears to be consolidating within a narrow range after breaking the pattern of lower highs and lows from the previous week.
A move above the 148.70 (38.2% Fibonacci retracement) to 150.30 (61.8% Fibonacci extension) zone could propel the exchange rate towards the monthly high (151.31). The next area of interest lies around 151.95 (2022 high).
However, if USD/JPY fails to trade back above the 148.70-150.30 zone, it may follow the negative slope of the 50-Day SMA (152.84).
A failure to defend the monthly low (146.54) could lead to a decline towards the 144.60 (50% Fibonacci retracement) to 145.90 (50% Fibonacci extension) region, with the October low (142.97) serving as the next potential support level.
Key Technical Levels:
| Level | Significance |
|---|---|
| 148.70 - 150.30 | Resistance Zone |
| 151.31 | Monthly High |
| 151.95 | 2022 High |
| 146.54 | Monthly Low (Support) |
| 144.60 - 145.90 | Support Zone |
| 142.97 | October Low (Support) |
Written by David Song, Senior Strategist