USD/JPY Forecast: Japan to Monitor Yen’s Weakness

• Japan’s top currency diplomat stated that they would closely monitor currency movements.

• Masato Kanda emphasized that currency rates should reflect fundamentals.

• The yen’s weakness has increased import costs, leading to a persistent trade deficit.

Today’s USD/JPY forecast is slightly bullish as the yen strengthens after the threat of intervention. On Tuesday, Japan’s top currency diplomat said they would closely monitor currency movements and keep all options open. This followed a meeting of financial authorities in response to the yen’s decline to a six-month low against the US dollar.

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Furthermore, Masato Kanda, the vice finance minister for international affairs, emphasized that currency rates should reflect fundamentals and move steadily. After discussing with counterparts from the Bank of Japan and the country’s financial watchdog, he made the remarks at a press conference. These three-party talks typically occur when the yen experiences significant upward or downward swings.

Additionally, Kanda mentioned that the government and the central bank affirmed their intention to maintain close communication to address various market risks. Similarly, discussions were held last year to caution against excessive depreciation of the Japanese currency.

A weaker yen leads to higher import costs and negatively impacts private consumption, a crucial component of the world’s third-largest economy.

Meanwhile, last year’s meeting preceded Japan’s intervention in the foreign exchange market, involving selling dollars and buying yen. This intervention, the first in 24 years, was prompted by the yen’s depreciation to a 32-year low against the US currency.

Typically, policymakers are concerned about a strong yen as it undermines the competitiveness of Japan’s export-oriented economy. However, in recent times, the yen’s weakness has become a more significant concern. It has increased import costs, leading to a persistent trade deficit and eroding Japan’s purchasing power.

USD/JPY key events today

Meanwhile, investors will get labor market data from the US. The JOLTs job openings report will show the number of vacancies in the US.

USD/JPY technical forecast: Bulls remain strong below the 30-SMA.

USD/JPY is trading near a strong resistance level comprising the 30-SMA and the 140.00 key levels. Bears have attempted to reverse the trend. However, to confirm a reversal, the price must go further below the 30-SMA and start making lower highs and lows.

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At the same time, the RSI must break below 50 to support bearish momentum. Currently, the RSI is slightly above 50, a sign that bulls are still stronger. This might see the price break above the SMA to retest the 141.00 resistance.

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