USD/JPY To Test 140 Soon? – USD/JPY Market Analysis Forecast

Key Points

• The divergence in Fed/BoJ policy could limit any USD/JPY rallies. 
• Will data from Japan continue to improve slightly?
• All eyes are on the Jackson Hole Symposium, Powell could push back some extreme dovish expectations.
• USD/JPY could test 140 in the coming days unless the dollar can find a bottom.

BoJ/Fed Policy Divergence

The Federal Reserve has had to hike interest rates aggressively to combat inflation and has held rates at 5.25% until more evidence of falling inflation has occurred. However, it is now widely expected to begin easing that cycle with its first cut since March 2020 in September. The debate is not if they will cut but how aggressively they will do so, with some analysts forecasting at least 100bps worth of cuts this year.

Conversely, the Bank of Japan has kept rates ultra-low/negative for eight years to stimulate the economy until now. This changed when the Bank of Japan decided to hike rates by 0.15% to 0.25% in a historic move from Ueda. This policy divergence between the Federal Reserve and the Bank of Japan is why the recent USD/JPY sell-off may not be over.

Is Data In Japan Improving?

Last week, Japan printed an upbeat second-quarter Gross Domestic Product (GDP), fuelling the fire that Japan’s data is continuing to improve. This gives Bank of Japan governor Kazuo Ueda more scope to be hawkish.

Japan will release its manufacturing PMI figures this week, and a figure above 50 could spark more demand for Yen. Furthermore, inflation figures are due out, and the annual inflation rate is expected to tick slightly higher to 2.7%.

As stated in FX Empire, Bloomberg TV Asia Pacific Chief Markets Editor David Ingles shared a Bloomberg chart showing net long positions for the first time since 2021. He claims that “hedge funds have finally turned net bullish on the Japanese Yen.” All in all, it feels like another wave of Japanese Yen strength will come.

Jackson Hole Symposium Is Crucial For Markets

The importance of the Jackson Hole Synopsium beginning on Thursday should not be underestimated. Traders will likely be hanging off every dovish word Jerome Powell uses in his speech on Friday, as the markets expect rate cuts starting from the next meeting. Furthermore, Ueda will be called into parliament on Friday to answer questions on monetary policy. More specifically, he will be asked to explain the recent rate hike after analysts blame this decision for the recent market volatility. If he holds a more hawkish tone, expect more USD/JPY downside in the short term.

USD/JPY to 140 soon?

Although it can be argued that dollar selling is overdone, it may not be wise to buy dollars against the Yen for the reasons stated in the article. Instead, if the bearish trend on the greenback continues, then look no further than USD/JPY to benefit from it.

USDJPY has been making a series of lower lows and lower highs for quite a few weeks, confirming a bearish structure. Choosing the path of least resistance is the smart play here, and with the price at the EMA12 on the H4 chart, this could act as resistance to test the August low of 141.700. If the market closes below this low, there could be a further fall to 140.000, where there may be a bounce. The bulls hope this market will bottom out here, but they need to see a break above 147.000 to be confident in a bullish reversal.