USD/JPY Forecast: Dollar Hits 3-Month Low on Dovish Fed

• Fed’s Waller suggested the possibility of a rate cut in the coming months.

• The dollar dropped over 0.5% to 146.675 yen, marking its weakest point in over two months.

• A key measure of Japan’s inflation trend accelerated to 2.2% in October.

The USD/JPY forecast showed a bearish bias entering midweek as the dollar fell to its lowest point over three months. Notably, the decline came after Fed Governor Christopher Waller, a historically hawkish and influential figure at the central bank, suggested on Tuesday the possibility of a rate cut in the coming months. Consequently, this fueled market expectations that US interest rates have peaked. As a result, the dollar dropped over 0.5% to 146.675 yen, marking its weakest point in over two months. 

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Kyle Rodda, a senior financial market analyst at Capital.com, noted Waller’s shift from a relatively hawkish stance to a more dovish one. Moreover, the change signaled a potential consensus among board members that rates may have peaked. Therefore, rate cuts could start next year. 

Notably, current market pricing indicates a 40% chance of the Fed starting monetary policy easing as early as next March. It is up from roughly 22% the previous day.

Elsewhere, data on Tuesday revealed a key measure of Japan’s inflation trend accelerating to 2.2% in October, a new record high. It signals broadening price pressure and strengthens the case for the central bank to reduce its monetary stimulus. At the upcoming policy-setting meeting on Dec. 18-19, policymakers will consider this data, among other factors.

Notably, the Bank of Japan (BOJ) remains a global dovish outlier, maintaining an ultra-loose policy. Meanwhile, other major central banks have aggressively raised interest rates to combat inflation.

USD/JPY key events today

• US GDP for Q3

USD/JPY technical forecast: Price in freefall following resistance setback

On the technical side, the USD/JPY price has collapsed after failing to break above the 149.75 resistance level. Initially, the bulls tried taking control by pushing the price above the 30-SMA. However, bears were waiting to resume the downtrend at the 149.75 level.

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The bearish bias is strong, with the price far below the 30-SMA and the RSI in the oversold region. Moreover, the price broke below the 147.51 level to make a lower low. Consequently, the downtrend will likely continue, with bears targeting the next support level at 146.50.

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