Is the Japanese Yen Doomed? – USDJPY Market Analysis Forecast

Key Points

• USDJPY continues grind higher.
• BoJ signals “potential rate hike.”
• Federal Reserve remains hawkish.
• USDJPY to 160.000?

Market Overview

Right now, it seems like only something extreme could save the Japanese Yen from its current slump. When writing this article, USDJPY has gained 340 pips in the last couple of weeks. This is a solid gain in any market in such a time frame, but when you factor in US data, it has turned, on the whole, weaker in June, which has meant some pressure on the US Dollar. It makes this gain quite remarkable.

This leaves the question on everyone’s mind: is the Japanese Yen doomed?

BoJ Signals Potential Rate Hike

At the Bank of Japan policy meeting on Friday, it was announced that its huge bond purchases would start to be trimmed, another small step in what has been an unprecedented period of monetary stimulus. The move lower has already been reversed.

Moreover, the BoJ Governor Kazuo Ueda said, “There’s a chance we could raise interest rates at our next policy meeting, depending on economic, price, and financial data and information available at the time.” With no explanation of any specifics at all, it is no surprise that the markets aren’t buying into a hawkish BoJ yet.

Fed Remains Hawkish

Policy divergence is likely to become a hot topic in the market. With the European Central Bank and Bank of Canada both deciding on a 25bps interest rate cut last week, the Federal Reserve held firm. In fact, they made a conscious effort to push back on the chance of more than one cut this year. As a result, the US Dollar has gained steadily after some weeks of pressure.

However, the data has been turning softer, and experts are calling for the Fed to “cut sooner rather than later.” It will be fascinating to see if the data turns softer, as the markets may become nervous about the Fed cutting too late. 

USDJPY To Breach 160.000?

The story for USDJPY has been the same since the intervention: a market grinding higher with sharp pullbacks. The first came in May, 300 pips in under two days. The second came in early June, 280 pips in under two days. The third came last week, 160 pips in eight hours.

The best approach for this market could be to wait for the next sharp pullback. The issue is that we will never know when it will happen. However, the most important thing is to be ready if it happens, and there is a 4-hour order block at 156.191. This is 200 pips away from the current price.

The target from here could be as high as 160.000, but due to the nature of the retracements right now, it may be smart to scale out of the trade if it moves in your favour.