Is The USD/JPY Forex Pair Able to Get Above 150?

On Friday, October 21, the USDJPY rose to 151.95, a new high since 1998. However, during the days that followed, it returned to the 146.00 area. The eyes of traders worldwide are drawn to the level of 150.00. The question is: will the dollar/yen manage to settle above this psychological mark?

Some experts say that USDJPY has further room to rise. Eisuke Sakakibara, Japan’s former vice minister of finance for international affairs, also known as “Mr. Yen,” expects to see it at 170.00 in 2023. Others, on the contrary, are sure that Japanese monetary authorities won’t allow such an advance.

Let’s look at the problem from different angles. First, we’ll analyze fundamentals – the policy of the Bank of Japan and the actions of the US Federal Reserve – and see how they set the trend for USDJPY. Next, we’ll check what the charts tell us.

Japan’s Yen-buying vs. Monetary Policy

Japanese policymakers are actively trying to tame USDJPY and, hence, the yen’s depreciation. A weaker yen is a challenge for Japan because it makes imports more expensive and difficult for the Bank of Japan to maintain ultra-low rates.

Japanese central bank stayed committed to low rates even though other regulators raised their rates tightening policy to fight inflation. Japan is also facing an inflation problem. In September, the nation’s core consumer inflation rate accelerated to a fresh eight-year high of 3.0%. As a result, even though the BOJ wants to support the economy through low rates, it may have to start raising borrowing costs to cool the raging prices.

That’s why there’s talk among analysts and investors that the Bank of Japan will be forced to abandon its dovish stance over the coming months. Given that the Forex market is driven more by expectations than facts, such talk can tame the rally of USDJPY.

The Bank of Japan’s statement, policy outlook, and press conference on Friday, October 28, will be critical as the central bank may drop hints on how it estimates the current situation and what it aims to do next. Such comments would have a direct impact on the JPY. Signs that the regulator is concerned by high inflation may drive the yen up and USDJPY down. On the contrary, if the central bank underlines that its policy stays the same, USDJPY may rise.

Interestingly, on Tuesday, October 25, Japanese Finance Minister Shunichi Suzuki made it clear that there was no contradiction between his ministry’s initiative to buy the yen to limit its slide and the BOJ’s monetary easing. He further remarked that while the BOJ’s policy is targeted at economic stability, the Finance ministry aims to support the national currency. In other words, the BOJ may get some help from the government. This help may allow the central bank to maintain the current interest rates this Friday, October 28.

US Hawkish Rate Policies Not Likely to End Soon

The Bank of Japan and the Fed drive the USDJPY pair, so what’s happening in the US?

In September, the Federal Reserve Board hiked interest rates past the neutral rate of 2.5% to arrest inflation. Speaking on the matter, Mark Hamrick, Bankrate’s senior economic analyst, remarked, “the Federal Reserve continues to see a bright green light with respect to future interest rate increases.” He added, “based on the latest snapshots of inflation; they believe the target range for the federal funds rate must go higher from here…”

To sum up, as we await the Core PCE Price Index figures on Friday, the hints from the Fed and the available statistics hint at a stronger US dollar.

USD/JPY: Technical Analysis

The pair maintains a steady uptrend. Since August, it has been trading above the 200 SMA on the H4 timeframe. Currently, it is slowly inching closer to this support line once more.

Given the dollar’s strength and the yen’s weakness, the outlook appears to be bullish from a fundamental point of view. The charts below confirm this idea.

The image above shows that the US Dollar index is approaching the 100-day SMA, which may support the continuation of the uptrend. The trend line near the Moving Average provides additional confirmation.

The daily chart of USDJPY shows that price is approaching a trend line support, the 144.110 horizontal support, a demand zone, and the 50-day SMA. All these confluences indicate the possibility of a bullish trend continuation.

Conclusion

Although there are reasons for the Bank of Japan to change its policy, the analysis shows that it may choose to maintain the status quo for the time being. This, in turn, means a potential upside for USDJPY.

It’s necessary to keep an eye on the economic data. The PCE Price index for the US dollar and the Bank of Japan’s policy statement may provide a good opportunity for a bullish continuation for traders, provided the figures reflect a strengthening dollar and a weaker yen. The releases are due Friday, October 28. Hence, increased volatility is to be expected.