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  • Yen bulls are optimistic that there might be a BoJ policy change soon.
  • Japan’s government might revise the BoJ’s inflation target.
  • The US private sector contracted for the sixth consecutive month in December.

Today’s USD/JPY forecast is bearish. On Monday, the yen increased on reports that the Bank of Japan and the Japanese government may soon amend their joint statement regarding the central bank’s inflation target, thus opening the door for a change to the BoJ’s ultra-loose monetary policy.

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Following an increase of more than 0.5% to a session high of 135.78, the yen last traded 0.4% higher at 136.19 per dollar.

The joint declaration the BoJ and the Japanese government signed in 2013, committing the central bank to attain a 2% inflation target as soon as possible, may be revised by the government of Japan in the coming year.

If a change were to be made, it would take place after the appointment of a new governor of the BOJ in April, which may increase the likelihood that the ultra-loose monetary policy of outgoing Governor Haruhiko Kuroda will be revised.

The yen has fallen more than 15% this year due to that policy position and the resulting interest rate differences with the rest of the world.

The Flash US Composite PMI Output Index, which measures the manufacturing and services sectors, dipped to 44.6 this month from 46.4 in November. It was the sixth consecutive month that the indicator remained below the 50 line, which implies a contraction in the private sector.

USD/JPY key events today

All focus will be on the BoJ policy meeting later today, where investors expect the bank to hold its negative rates and maintain its dovish stance.

USD/JPY technical forecast: Bearish momentum returns below the 30-SMA

USD/JPY forecast

USD/JPY has respected the 138.00 key resistance level by bouncing lower and breaking below the 30-SMA. The RSI has crossed below the 50 mark, indicating a sentiment shift to bearish. Currently, the price is retesting the 30-SMA as resistance before likely falling lower.

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If bears can maintain control, the price will likely take out the 135.01 support and fall to the 134.00 support level. Bulls can return at any one of these support levels, but the bearish move will continue if the price stays below the 30-SMA.

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