USD/JPY outlook mired by failure to test December high

USD/JPY Outlook

USD/JPY appears to be reversing ahead of the December 2022 high (138.18) as it fails to hold above the 200-Day SMA (137.47), but the Bank of Japan (BoJ) interest rate decision may curb the recent decline in the exchange rate as the central bank is expected to retain its easing cycle.

USD/JPY outlook mired by failure to test December high

USD/JPY snaps the series of higher highs and lows from earlier this week to keep the Relative Strength Index (RSI) below overbought territory, and the exchange rate may continue to give back the advance from earlier this month as the oscillator shows the bullish momentum abating.

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However, the BoJ is expected to retain the Quantitative and Qualitative Easing (QQE) program with Yield-Curve Control (YCC) at Governor Haruhiko Kuroda’s last meeting, and more of the same from the central bank may produce headwinds for the Japanese Yen as the board retains a dovish forward guidance for monetary policy.

In turn, USD/JPY may continue to hold above the monthly low (135.26) as Federal Reserve Chairman Jerome Powell warns of higher interest rates, and data prints coming out of the US fuel speculation for a more restrictive policy as the Non-Farm Payrolls (NFP) report is anticipated to show a further improvement in job/wage growth.

The US is now expected to add 205K jobs in February, while Average Hourly Earnings are projected to hit 4.7% per annum during the same period after slowing for the past two months. A positive development may generate a bullish reaction in the US Dollar as it puts pressure on the Federal Open Market Committee (FOMC) to implement larger rate hikes, and the Greenback may continue to outperform its Japanese counterpart ahead of the Fed rate decision on March 22 amid the deviating paths for monetary policy.

With that said, USD/JPY may stage further attempts to test the December 2022 high (138.18) as the BoJ remains reluctant to switch gears, but lack of momentum to hold above the 200-Day SMA (137.47) may lead to a near-term pullback in the exchange rate as the RSI seems to be reversing ahead of overbought territory.

Japanese Yen Price Chart – USD/JPY Daily

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

USD/JPY snaps the recent series of higher highs and lows after failing to test the December 2022 high (138.18), with the Relative Strength Index (RSI) still below 70 as the exchange rate struggles to hold above the 200-Day SMA (137.47).
A close below the 136.00 (23.6% Fibonacci extension) handle may lead to a test of the monthly low (135.26) as the bullish momentum abates, with the next area of interest coming in around 132.60 (38.2% Fibonacci retracement) to 133.90 (23.6% Fibonacci retracement).
Nevertheless, USD/JPY may stage further attempts to test the December 2022 high (138.18) if it closes above the 136.00 (23.6% Fibonacci extension) handle, with the next region of interest coming in around 138.70 (78.6% Fibonacci extension) to 140.00 (23.6% Fibonacci retracement).

--- Written by David Song, Strategist

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