USD/JPY Outlook: Yen Recovers as BoJ Engages Prime Minister

• The US dollar stepped back from a 10-week high.

• Bank of Japan Governor Kazuo Ueda had discussions with Japan’s prime minister.

• Money markets indicate slightly less than a 50/50 chance of another 25 basis point Fed hike by November.

Today’s USD/JPY outlook is bearish. The yen rebounded from a nine-month low after Bank of Japan Governor Kazuo Ueda had discussions with the prime minister. However, he clarified that they did not discuss exchange-rate fluctuations. 

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Meanwhile, the US dollar stepped back from a 10-week high against its major counterparts. This occurred even as Treasury yields surged to new highs. Traders anticipated a significant speech from Federal Reserve Chair Jerome Powell later in the week.

If Chair Powell hints at potential rate hikes in his upcoming speech at the central bank’s annual symposium in Jackson Hole, Wyoming, it could open a new avenue for the US dollar to strengthen. Moreover, the dollar index will likely surpass 104.

Notably, the benchmark 10-year US Treasury yields reached their highest level since November 2007, hitting 4.366%. This rise reflects the growing belief in the market that US interest rates will remain elevated for an extended period.

Currently, money markets are indicating slightly less than a 50/50 chance of one 25 basis point Federal Reserve rate increase by November. Afterward, they believe the central bank will transition to rate cuts.

However, despite the surge in US yields, the dollar-yen pair declined by 0.22% to 145.935. Traders are cautious due to concerns about intervention. This is because levels around 146 prompted significant yen purchases by Japanese authorities last September.

USD/JPY key events today

Investors will receive the existing home sales report from the US, which is expected to show a slight drop.

USD/JPY technical outlook: Price falls short of 146.51 resistance.

On the charts, USD/JPY is pulling back after failing to make a new high above the 146.51 resistance level. Bears are currently challenging the 30-SMA support while the RSI is approaching the pivotal 50-level.

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Therefore, there is a chance the price will break below 30-SMA because the price failed to make a new high. This shows that bulls have weakened. A break below the SMA would see the price retest the 145.00 support level. Moreover, a break below this level would make a lower low, likely starting a bearish trend.

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