USD/JPY Forecast: BoJ Policy Shift Keeps Yen at 7-Month High

• Market sentiment is dominated by anticipation of a BOJ policy shift.

• The yen increased by more than 0.4% to 127.24 per dollar.

• The US dollar index sank 0.46% to a seven-month low.

Today’s USD/JPY forecast is bearish. The Japanese yen gained to a more than seven-month high on Monday as market sentiment was dominated by anticipation that the BOJ would further modify, or completely abandon, its yield control policy when it publishes its monetary policy decision on Wednesday.

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The yen increased by more than 0.4% to 127.24 per dollar before last trading at 127.38.

Market pressure has been mounting on the BOJ to abandon its ultra-easy monetary policy, resulting in Japan’s benchmark 10-year government bond rate exceeding the new ceiling for two sessions.

According to Ray Attrill, head of FX strategy at National Australia Bank, the whole world will be focused on Wednesday… and probably the week in G10 (currencies) will be characterized by what happens to the yen and yen crosses out of that.

“I don’t believe (the BOJ) has the luxury of time to declare that they’re going to evaluate and wait until Q2 or for Kuroda to complete his tenure before making any further changes.”

The yen’s 12% decline last year was mostly caused by the BOJ’s yield curve control strategy, and since the central bank’s unexpected move to broaden the band around its yield target in December, the yen has increased by more than 6%.

The US dollar index sank 0.46% to a seven-month low against a basket of currencies as the dollar continued its inflation decline.

USD/JPY key events today

There won’t be any key news releases from Japan or the United States, which is observing the Martin Luther King, Jr. Day holiday. 

USD/JPY technical forecast: Bulls return at 127.51 support.

In the 4-hour chart, USD/JPY is trading far below the 30-SMA, and the RSI is in the oversold region. Bulls have returned as the price is oversold, pushing the price off the 127.51 support. This might lead to a pullback that might get to the 129.75 key level. This would also retest the 30-SMA as resistance.

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 If bears still have momentum after a pullback, the price will likely seek a lower low below the 127.51 level. However, if bulls get to the 30-SMA and bears are weak, we might see a break above.

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