USD/JPY and Sub-139.50 in the Hands of BoJ Governor Ueda

It is a busy Friday for the USD/JPY. While there are no economic indicators from Japan or China for investors to consider, the Bank of Japan will be in the spotlight this morning. After a hawkish Fed pause, the markets are betting on the BoJ to persist with its ultra-loose monetary policy stance. Economists forecast the BoJ to leave interest rates at -0.10%.

A hold on interest rates would shift the focus to the monetary policy statement and the Bank of Japan press conference. A Bank of Japan Governor Kazuo Ueda Yield Curve Control Scheme (YCC) tweak is on the cards. However, the markets are not expecting a shift in forward guidance on interest rates, with inflation overshooting the BoJ target.

USD/JPY Price Action

This morning, the USD/JPY was down 0.06% to 140.171. A mixed start to the day saw the USD/JPY rise to an early high of 140.294 before falling to a low of 140.083.

Technical Indicators

Looking at the EMAs and the 4-hourly chart, the EMAs sent bullish signals. The USD/JPY sat above the 50-day EMA (139.820). The 50-day pulled away from the 100-day EMA, with the 100-day EMA widening from the 200-day EMA, delivering bullish signals.

A USD/JPY hold above the 50-day EMA (139.820) would support a breakout from R1 (141.193) to target R2 (142.130). However, a fall through the 50-day EMA (139.820) would bring S1 (139.629) and the 100-day EMA (139.336) into view. A USD/JPY fall through the 50-day EMA would send a bearish signal.

Resistance & Support Levels

The USD/JPY needs to move through the 140.566 pivot to target the First Major Resistance Level (R1) at 141.193 and the Thursday high of 141.504. A return to 141 would signal a bullish USD/JPY session. However, the BoJ must support a USD/JPY breakout.

In case of an extended rally, the bulls would likely test the Second Major Resistance Level (R2) at 142.130. The Third Major Resistance Level (R3) sits at 143.694.

Failure to move through the pivot would leave the First Major Support Level (S1) at 139.629 in play. However, barring a surprise BoJ signal-fueled sell-off, the USD/JPY pair should avoid sub-139.5 and the Second Major Support Level (S2) at 139.002. The Third Major Support Level (S3) sits at 137.438.

The US Session

Looking ahead to the US session, it is a relatively quiet day on the US economic calendar. Prelim Michigan Consumer Sentiment and Expectation figures for June will be in focus. After a mixed set of numbers on Thursday, the Consumer Sentiment and Expectations Indexes would need to improve markedly for any influence on the Fed policy outlook.

Considering the effect of Thursday’s retail sales and jobless claims on Fed sentiment, a pickup in consumer sentiment would suggest higher demand for goods that could translate into a more hawkish Fed and support a July move.

With the US economic calendar on the light side, Fed chatter will draw interest. FMOC members Bullard and Waller are among the first to speak after the end of the Fed blackout period.

According to the CME FedWatch Tool, the probability of a 25-basis point July rate hike stood at 67.0% on Thursday, up from 62.3% on Wednesday.