USD/JPY Outlook: Yen Edges Up as Japan’s Warnings Echo

• Japanese authorities got concerned when the yen hit a 34-year low on Wednesday.

• Suzuki repeated his warning that they would respond to any excessive currency moves.

• The dollar was on the back foot on Monday as Fed rate-cut bets increased.

The USD/JPY outlook is slightly bearish as the yen showcases a modest recovery amid the persistent drumbeat of Japanese warnings to curb currency depreciation. At the same time, the yen found some relief as the dollar lost ground due to an increase in Fed rate-cut bets.

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Investors have been cautious while trading USD/JPY, fearing a possible intervention since last week. Japanese authorities got concerned when the yen hit a 34-year low on Wednesday. As a result, they made it clear that they would take the necessary measures to curb further yen declines. 

The most recent intervention happened in 2022, when the pair hit the $152 mark, leading to a decline in USD/JPY. Notably, the currency pulled back on Monday when Finance Minister Shunichi Suzuki repeated his warning that they would respond to any excessive currency moves.

Meanwhile, the dollar was on the back foot on Monday as Fed rate-cut bets increased after Friday’s inflation report. The core PCE price index revealed a drop in inflation from 0.5% to 0.3%. Powell noted that the reading supported their view that inflation was on a downtrend. Consequently, traders increased the likelihood that the central bank will cut interest rates in June to 68.5%. The next major report is this month’s nonfarm payrolls. 

USD/JPY key events today

• US ISM Manufacturing PMI

USD/JPY technical outlook: Bears fight for control below the 30-SMA

On the charts, the USD/JPY price is trading in a tight range, slightly below the 30-SMA. Meanwhile, the RSI is consolidating slightly above the pivotal 50 level. This is a sign that bears and bulls are fighting for control at this level. This comes after the previous bullish trend paused at the 152.00 resistance level. 

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Notably, the pause revealed weakness in bulls, as they could no longer make big swings above the SMA. At the same time, the RSI made a bearish divergence, highlighting the fading bullish momentum. Moreover, the price made a bearish, engulfing candle. 

Consequently, there is a bigger chance that bears will win the current battle. If this happens, the price will likely fall to retest the 150.00 key level and 0.382 Fib retracement level.

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