USD/JPY Outlook: BoJ to Abandon YCC in 2023 amid Inflation

• The dollar rose after solid US services data.
• The Bank of Japan (BOJ) may ditch its 10-year bond yield cap as soon as next year.
• The BoJ will likely continue its ultra-loose monetary policy for the time being.

Today’s USD/JPY outlook is bullish. Tuesday saw the US dollar maintain its strength against key rivals after experiencing its greatest rise to two-week highs. The rise was brought on by speculation that the Fed might raise interest rates more than anticipated in response to solid US services data.

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According to Takeo Hoshi, a scholar with strong ties to the current central bank officials, the Bank of Japan (BOJ) may ditch its 10-year bond yield cap as soon as next year due to increased chances that inflation and wages will exceed forecasts.

According to Hoshi, the BOJ must continue its ultra-loose monetary policy for the time being to reassure the public that it is serious about reflating the economy for a long enough period to produce sustained inflation.

He told Reuters on Monday that the possibility of inflation exceeding expectations must also be considered as part-time and permanent workers’ earnings rise due to the labor crisis.

Core consumer inflation could exceed the BOJ’s 2% objective next fiscal year, leaving room for the central bank to ditch its 0% target for the yield on 10-year bonds. Inflation expectations are already “sufficiently” high, according to Hoshi.

USD/JPY key events today

Investors will pay attention to a speech from Bank of Japan board member Toyoaki Nakamura. This speech might contain clues on the future of monetary policy.

USD/JPY technical outlook: Sentiment shift from bearish to bullish

Looking at the 4-hour chart, we see the price above the 30-SMA and the RSI above 50, showing bulls have more strength. Bulls took over after bears failed to break below the 134.03 support level. They pushed the price above the 136.05 resistance and have just broken above the 30-SMA.

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If the bulls stay above the SMA, the next targets will be 138.03 and 140.01. It will also confirm a shift in sentiment, which could lead to a new bullish trend. A new bullish trend would be confirmed when the price starts making higher highs and higher lows.

However, if the price goes back below the SMA, the price will push lower and retest the 134.03 support.

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