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USD/JPY Forecast: Anticipated Higher Prices Amid High US Rate Environment

By:
James Hyerczyk
Updated: Jun 5, 2023, 06:41 GMT+00:00

Strong jobs report fuels surge in USD/JPY with 142.50 new target as market sentiment shifts toward Fed rate hike in July.

USD/JPY

In this article:

Highlights

  • Dollar/Yen pair rises on robust U.S. jobs report.
  • Market sentiment favors higher interest rates in July.
  • USD/JPY pair expected to reach 142.50, potential breakthrough to 145.00.

Overview

The Dollar/Yen currency pair saw an upward trajectory on Monday, driven by a robust U.S. jobs report that prompted traders to factor in extended periods of higher interest rates. The U.S. Dollar gained support from increased Treasury yields following Friday’s data, which revealed a significant increase in payrolls, surpassing economists’ forecasts.

At 06:17 GMT, the USD/JPY is trading $140.219, up 0.266 or +0.19%. On Friday, the Invesco CurrencyShares Japanese Yen Trust ETF (FXY) settled at $66.46, down $0.56 or -0.84%.

Job Growth Surprise Puts July Hike on Table

While the May jobs report showed stronger growth than expected, wage pressures eased, and the unemployment rate increased from a 53-year low. This development potentially allows the Federal Reserve to consider a pause in their rate hiking campaign during the upcoming June 13-14 meeting. However, market participants have shifted their expectations to a potential rate hike in July, indicating a reduced belief in rate cuts later in the year.

According to CME Group’s FedWatch tool, the probability of an interest rate hike next week has decreased to 1-in-4 odds, down from 2-in-3 odds the previous week. However, market sentiment suggests a 70% probability of rates being at least a quarter point higher in July compared to their current levels.

Short-Term Outlook:  Bullish

While the moderation of wage growth may imply a potential pause in rate hikes, analysts believe the U.S. Dollar will remain well supported. It is expected that the USD/JPY pair could rise to 142.50, with a clear break of that level opening the path to 145.00. Furthermore, bullish traders are likely to take advantage of any downward price fluctuations in the USD/JPY pair to initiate buying positions.

In conclusion, the Dollar/Yen pair has gained momentum as a result of the strong U.S. jobs report, leading traders to revise their expectations regarding interest rates. While the upcoming Fed meeting may witness a temporary pause, the overall sentiment suggests the U.S. Dollar will remain resilient. Traders anticipate potential upside in the USD/JPY pair, with a short-term target of 142.50, and a potential further breakthrough to 145.00.

Technical Analysis

Daily USD/JPY

The USD/JPY is currently trading between 142.216 (R1) and 137.859 (PIVOT), but edging closer to resistance, following Friday’s strong performance.

Since the main trend is up, buyers are likely to come in on a test of 137.859 (PIVOT) if they are looking for value. However, if it fails then look out to the downside. This could trigger a near-term acceleration into 134.783 (S1).

If the pivot holds and the upside momentum increases, then we’re going to assume that buyers are chasing the USD/JPY. This could create the upside momentum needed to challenge 142.216 (R1). Look for counter-trend sellers on the first test of this level.

Resistance & Support Levels

PIVOT – 137.859 R1 – 142.216
S1 – 134.783 R2 – 145.292
S2 – 130.425 R3 – 149.650

For a look at all of today’s economic events, check out our economic calendar.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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