- The Bank of Japan made a significant shift in policy when it hiked interest rates.
- Market participants shifted their focus to the possible pace and size of future BoJ hikes.
- The dollar closed last week with gains as US data revealed a resilient economy.
The USD/JPY forecast leans towards bullish territory on Monday, with the dollar showcasing resilience against a softened yen. Despite this, the recent rally has paused due to caution surrounding a potential intervention to bolster the yen.
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Last week, the Bank of Japan made a significant shift in policy when it hiked interest rates. As a result, interest rates went from negative to positive territory. Ideally, such a move should have strengthened the yen. However, markets had already priced in the move. For months, investors had speculated of a looming shift in policy, strengthening the yen. Therefore, there was no surprise when the central bank finally hiked rates.
Furthermore, market participants shifted their focus to the possible pace and size of future rate hikes, which was disappointing. Although Japan has started its hiking cycle, markets expect it to be slow and gradual. Consequently, the rate differential gap between Japan and the US will remain large for some time. For this reason, the yen has lost ground, leading to warnings of a possible intervention.
Japanese authorities have warned that the current move is based on speculation rather than fundamentals. Therefore, there is a high chance of intervention if the yen weakens beyond the $152.00 mark.
Meanwhile, the dollar strengthened on Friday, closing the week with gains as US data revealed a resilient economy. Consequently, there is doubt whether the Fed will implement the first rate cut in June.
USD/JPY key events today
The pair might drift sideways as no high-impact events are scheduled for today.
USD/JPY technical forecast: Bullish rally stalls above 150.75 barrier
On the technical side, the USD/JPY price has paused its rally after breaching the 150.75 key resistance level. Bullish momentum reached its maximum level when the RSI got overbought, allowing the price to pause and pull back. The price pulled back to retest 150.75 and is yet to make a new high.
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However, the bullish bias remains strong because the price trades above the 30-SMA, and the RSI is above 50. Therefore, the price will likely make a new swing when the 30-SMA catches up. This would retest the 152.01 resistance level, breaking above or bouncing lower.
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Saqib Iqbal
