USDJPY → BoJ dovishness helps create channel breakout

25 set 2023

USDJPY FORECAST:
- Monetary policy divergences between the Federal Reserve and the Bank of Japan will continue to weigh on the outlook for the Japanese yen
- The U.S. dollar retains a constructive profile for now
- This article looks at USD/JPY key levels to watch in the coming days

The Federal Reserve and the Bank of Japan had their September monetary policy meetings. The Fed maintained a hawkish stance, hinting at more tightening this year and expecting high interest rates for longer. Meanwhile, the BoJ stuck to its loose policy without indicating any immediate changes. This divergence favors the strength of the US dollar and may lead to some yen depreciation, although talk of FX intervention by Japan's government could deter excessive weakness.

From a technical perspective, USDJPY rose on Friday due to the Bank of Japan's dovish stance. It surpassed the 148.00 level but fell short of breaking the upper boundary of an ascending channel that has been in place since December 2022, currently at 148.50. If buyers manage to breach this barrier, it could lead to significant upward pressure and expose levels at 148.80 and 150.50.

However, if there is an unexpected shift in market sentiment favoring sellers and a rejection from current levels, the first support level is seen at 147.30, followed by 145.90. If bearish momentum continues, there is a possibility of a retracement towards 144.55, which is slightly below the 50-day simple moving average.