- BoJ’s Ueda reaffirmed his commitment to hike rates if inflation rises sustainably.
- Economists believe Japan’s central bank will hike rates one more time before the year ends.
- Powell’s speech might contain clues about the size and pace of future moves.
The USD/JPY outlook is mildly bearish as the yen strengthens after hawkish comments from the Bank of Japan Governor Kazuo Ueda. Meanwhile, the US dollar was under pressure ahead of Powell’s speech at the Jackson Hole symposium.
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On Friday, BoJ’s Ueda had to explain before parliament why the central bank surprised markets with a rate hike at the last meeting. He reaffirmed his commitment to hike rates if inflation rises sustainably. Economists believe Japan’s central bank will hike rates one more time before the year ends. The last rate hike caused turmoil in global markets as investors unwound the popular carry trade.
Initially, investors borrowed the low yielding yen to buy high yielding US assets. However, when the Bank of Japan started tightening its monetary policy, investors panicked. However, Ueda’s tone showed policymakers were ready to keep increasing borrowing costs.
Meanwhile, in the US, Fed policymakers on Thursday supported the outlook for a rate cut next month. They dropped the previous cautious tone, indicating confidence that inflation will reach the 2% target. At the same time, markets are implying a 73.5% chance the central bank will cut rates by 25 bps.
The focus is now on the Jackson Hole symposium. Powell’s speech might contain clues about the size and pace of future moves. Investors will likely react more to clues about policy after September.
USD/JPY key events
- Fed Chair Powell Speaks
- Jackson Hole Symposium
USD/JPY technical outlook: Price consolidates around 0.382 Fib
On the technical side, the USD/JPY price has risen to retest the 30-SMA resistance. However, the bias remains bearish since it has stayed below the SMA and the RSI is slightly under 50. Nevertheless, there is little enthusiasm to make large swings.
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Neither bears nor bulls are ready to push the price too far away from the SMA. This is a sign of indecision. At the same time, the price has remained near the 0.382 Fib level. If bears regain momentum, USD/JPY will bounce lower to the 142.56 support level. Otherwise, it might break above the SMA to retest the 149.01 resistance.
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