USD/JPY Weekly Forecast: Dovish BOJ Limiting Losses, Eying 140.0

• Japan’s government has raised concern over the yen’s sharp decline.
• BOJ is expected to hold rates at -0.1%.
• Japan’s inflation remains low compared to other developed economies.

Th weekly USD/JPY forecast is bullish as the BOJ is expected to maintain its negative rates while the Fed is preparing for yet another hike. 

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Ups and downs of USD/JPY

There was a time when some investors believed the worst was over for the yen. These beliefs were destroyed in the past week as the yen fell further against the dollar. The week started with BOJ Governor Haruhiko Kuroda’s warnings about Japan’s worsening economic outlook.

Markets also got a chance to confirm the ultra-loose monetary policy adopted by the BOJ when Japan’s ruling coalition party won more seats, vowing to maintain the current policy. A change in Japan’s monetary policy might not be in the cards.

As the yen suffered sharp declines during the week, Japan’s government got concerned and said it would closely monitor US monetary policy and inflation trends. This concern was still not enough, as the possibility of a 100bps rate hike from the Fed put the last nail in the coffin. The yen’s future remains bleak.

Next week’s key events for USD/JPY 

The Bank of Japan intends to maintain its dovish stance at the meeting.

“When you look across the world, the BOJ’s dovish monetary policy stance is an easy target for overseas investors who may build up yen-selling positions,” said Mari Iwashita, chief market economist at Daiwa Securities.

The BoJ is in no rush to withdraw its stimulus as the economy is yet to recover, and inflation is slightly above the 2% target.

“If necessary, we’ll take additional monetary easing steps without hesitation with an eye on the impact of the pandemic,” BOJ Governor Haruhiko Kuroda said on Monday.

Investors expect the bank to hold its rates at -0.1.

USD/JPY weekly technical forecast: Bulls halt never-ending rally at 139.

The daily chart shows the price has taken a new high and is experiencing resistance at 139.013. We can also see a bearish divergence in the RSI, showing weakness in the new high.

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This weakness could mean a pullback to the 22-SMA or lower. If the price breaks below the 22-SMA, it will likely find support at 131.961, which acted as support on June 16. The uptrend will continue if the price stays above the 22-SMA and the RSI stays above 50.

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