US Dollar Forecast: USD/JPY Defends Post-BoJ Recovery

US Dollar Outlook: USD/JPY

USD/JPY may further retrace the decline from the monthly high (147.21) as it climbs a fresh weekly high (145.22).

US Dollar Forecast: USD/JPY Defends Post-BoJ Recovery

The recent advance in USD/JPY may indicate a recovery in carry-trade interest as the Bank of Japan (BoJ) votes unanimously for the ‘the uncollateralized overnight call rate to remain at around 0.25 percent’ in September.

It seems as though the BoJ remains reluctant to pursue a rate-hike cycle as ‘there remain high uncertainties surrounding Japan's economic activity and prices, including developments in overseas economic activity and prices,’ and speculation surrounding the Federal Reserve may sway USD/JPY amid the change in regime.

US Economic Calendar

It remains to be seen if the US Personal Consumption Expenditure (PCE) report will influence the Federal Open Market Committee (FOMC) as Chairman Jerome Powell and Co. insist that ‘monetary policy will adjust in order to best promote our maximum employment and price stability goals,’ and the central bank may pay increased attention to the US labor market in an effort to avoid a recession.

With that said, the carry trade may further unwind over the remainder of the year as Fed officials project a lower trajectory for US interest rates, but USD/JPY may stage a larger recovery over the coming days as it defends the advance following the BoJ rate decision.

USD/JPY Price Chart – Daily

Chart Prepared by David Song, Strategist; USD/JPY on TradingView

• USD/JPY extends the advance from the monthly low (139.58) following the attempts to close below the 140.50 (61.8% Fibonacci retracement) to 141.50 (38.2% Fibonacci extension) zone, with a breach above the 144.60 (50% Fibonacci retracement) to 145.90 (50% Fibonacci extension) area bringing the monthly high (147.21) on the radar.
• Next region of interest comes in around 148.70 (38.2% Fibonacci extension) but the recovery in USD/JPY may end up short-lived if it struggles to push above the 144.60 (50% Fibonacci retracement) to 145.90 (50% Fibonacci extension) area.
• In turn, USD/JPY may track the negative slope in the 50-Day SMA (146.49), with a close below the 140.50 (61.8% Fibonacci retracement) to 141.50 (38.2% Fibonacci extension) zone opening up the July 2023 low (137.24) 

--- Written by David Song, Senior Strategist

Follow on Twitter at @DavidJSong