USD/JPY Outlook: Yen Reflects Confidence in BoJ Hikes

• The USD/JPY outlook shows a stronger yen at the start of the week.

• The BoJ faces high food inflation, strong wage growth, and the possibility of a weak yen.

• US employers added 177,000 new workers, beating estimates of 138,000.

The USD/JPY outlook shows a stronger yen at the start of the week, as market participants maintain hopes for further BoJ tightening. Meanwhile, the dollar strengthened against the yen briefly on Friday after an upbeat US employment report. 

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The yen collapsed Thursday after the Bank of Japan kept interest rates unchanged. Furthermore, the central bank downgraded its outlook for growth and inflation due to the impact of Trump’s tariffs. Governor Ueda noted that Trump’s trade policies had created a lot of uncertainty. Experts took this to mean the policymakers would delay rate hikes. As a result, rate hike expectations dropped. 

However, Japan’s currency rebounded on Friday after the impact of the policy meeting faded. The BoJ has to face high food inflation, strong wage growth, and the chances of a weak yen. Therefore, hopes are still alive that policymakers will boost interest rates.

Meanwhile, the greenback got a brief boost from data showing a resilient labor market. The economy added 177,000 new workers, beating estimates of 138,000. The unemployment rate was unchanged at 4.2%. After the report, market participants priced a 35% chance of a June Fed rate cut, down from 58%. 

However, due to Trump’s tariffs, analysts expect employment to deteriorate in the coming months. 

USD/JPY key events today

• US ISM services PMI

USD/JPY technical outlook: Brief retreat meets solid support zone

On the technical side, bulls have found their footing above the 30-SMA. The trend recently reversed when bears failed to go below the 140.01 support level. The price broke above it resistance trendline and pulled back for a retest. After that, it made a higher high, confirming the new uptrend. 

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However, after a new high, the price has returned to retest the recently broken 144.02 key level. At the same time, it is trading nearer the 30-SMA, which is another support level. Still, the price is above the SMA and the RSI is slightly over 50, suggesting a bullish bias. 

Therefore, bulls might return at this support zone to seek new highs. A bounce higher will likely target the 148.01 resistance level. The trend will only change when the price breaks and stays below the SMA.

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