Home USD/JPY Weekly Forecast: Japan-US Rate Gap Weighs on Yen
USD JPY Forecast

USD/JPY Weekly Forecast: Japan-US Rate Gap Weighs on Yen

  • The yen reached a new 38-year low and raised intervention concerns.
  • An increase in Tokyo’s inflation increased the chances of a BoJ hike in July.
  • The US core PCE index was softer, confirming the recent decline in price pressures.

The USD/JPY weekly forecast is bullish as the interest rate differential between Japan and the US weighs on the yen.

Ups and downs of USD/JPY

USD/JPY had a bullish week, with the yen reaching a new 38-year low and raising intervention concerns. The decline in the yen last week came as investors focused on the gap in rates between the US and Japan. Therefore, there was little focus on economic data, which resulted in many warnings from Japanese authorities. 

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Data showed an increase in Tokyo’s inflation, which increased the chances of a BoJ hike in July. Meanwhile, in the US, the core PCE index came in softer, confirming the recent decline in price pressures. Consequently, bets for a Fed cut in September rose. However, none of these reports could stop the yen’s plunge.

Next week’s key events for USD/JPY

Next week, investors will focus on US data, such as nonfarm payrolls and the manufacturing PMI. They will also pay attention to Powell’s speech and the FOMC minutes for clues on the Fed’s policy outlook. 

At the last Fed meeting, policymakers assumed a slightly hawkish tone, forecasting just one rate cut this year. However, traders have maintained a more dovish outlook for two cuts this year due to softer inflation figures. Therefore, they will pay close attention to Powell’s speech to see whether his tone will change. 

Meanwhile, the employment report will shape expectations for rate cuts. A bigger-than-expected number would lower expectations for rate cuts. On the other hand, a smaller-than-expected figure would increase bets for the first cut in September.

USD/JPY weekly forecast: Price exceeds 160.00 resistance to set a new high

USD/JPY weekly forecast
USD/JPY daily chart

On the technical side, the USD/JPY price recently broke above the 160.00 key resistance level to make a new high in the bullish trend. The price has consistently risen with higher lows and highs, indicating a solid uptrend. Moreover, it has mostly stayed above the 22-SMA with the RSI above 50, supporting solid bullish momentum. 

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However, with the recent new high, bulls have grown weaker. The RSI has made a bearish divergence with the price, a sign of exhaustion in the bullish move. If this divergence plays out, the price might revisit the support trendline before either breaking below or rising higher.

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Saqib Iqbal

Saqib Iqbal

Saqib Iqbal is a market analyst, prop fund trader and mentor, serving the industry with his analysis and educational content since 2011. The author has great exposure to different financial markets and institutions. He's well-known for his day trading reviews and multiple timeframe analysis.