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

• The BOJ policy change last month gave the yen a general lift.
• The BOJ is considering revising its inflation projections for fiscal 2023 and 2024.
• Analysts are keeping an eye out for any changes to the 2013 policy agreement between the BOJ and the government.

Today’s USD/JPY forecast is bearish as the yen extends last month’s gains. On Tuesday, the yen surged to a seven-month high versus the dollar due to growing speculation that the Bank of Japan would abandon its ultra-easy monetary policy.

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According to a Saturday Nikkei story, the BOJ is considering revising its inflation projections for fiscal 2023 and 2024 so that price increases will be near its 2% target.

Last month, the BOJ surprised the markets by expanding the range of its 10-year yield cap. It was intended to correct bond market inefficiencies but was viewed by some analysts as a sign that the ultra-loose monetary easing program was about to end.

Upgrades to the BOJ’s inflation projection would feed this rumor even further. Governor Haruhiko Kuroda said that the central bank might contemplate a withdrawal if its 2% inflation objective is achieved along with wage increases.

Nikkei reported that the suggested modifications would increase the core consumer price index by around 3% in fiscal 2022, between 1.6% and 2% in 2023, and nearly 2% in 2024.

The earlier predictions from October were about 2.9%, 1.6%, and 1.6%, respectively.

The BOJ will provide the most recent quarterly growth and price outlook following its upcoming policy meeting on January 17–18.

Analysts keep an eye out for any changes to the 2013 policy agreement between the BOJ and the government as they look for any signs of a change in monetary policy when Kuroda’s 10-year term ends in April.

USD/JPY key events today

There won’t be any significant news releases today, so investors will keep digesting the Nikkei story.

USD/JPY technical forecast: Strong bearish momentum below 130.00

Looking at the 4-hour chart, we see USD/JPY in a strong bearish move, trading far below the 30-SMA. The RSI has crossed over to the oversold region, indicating maximum bearish momentum. This has allowed bulls to return for a retracement.

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With the bulls’ return, the price is currently retesting the recently broken key level at 130.00. However, the price might consolidate if bears are still strong before continuing lower.

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