USD/JPY Forecast: Dollar Gains Amid Central Bank Dichotomy, Key News Ahead

Highlights

• USD/JPY ended the week up 0.70% at 146.378, after a Powell-fueled high of 146.634.
• Powell and Ueda reaffirm monetary policy divergence, favoring the dollar.
• Further USD/JPY gains are possible but FOMC members must align with Fed Chair for hawkish bets.

Friday Overview

The USD/JPY gained 0.38% on Friday. Following a 0.68% rally on Thursday, the USD/JPY ended the week up 0.70% to 146.378. After a range-bound morning, the USD/JPY fell to a pre-Powell low of 145.715 before rising to a Powell-fueled high of 146.634.

Tokyo Inflation Numbers and Fed Chair Powell Tilt Policy Divergence

This morning, market risk appetite and sentiment toward central bank monetary policy will dictate direction. While there are no economic indicators from Japan or China for investors to consider, we expect Bank of Japan Governor Ueda’s comments from the Jackson Hole Symposium to resonate.

The Bank of Japan Governor reportedly said,

“We think that underlying inflation is still a bit below our target. This is why we are sticking with our current monetary easing framework.”

Tokyo core inflation softened from 3.0% to 2.8% in August.

A Busy Week for the Dollar and the Fed Hawks

Fed Chair Powell and BoJ Governor Ueda reaffirmed monetary policy divergence in favor of the dollar. While Fed Chair Powell talked about the willingness to lift interest rates higher, Governor Ueda justified the ultra-loose monetary policy stance.

Considering the comments from the Jackson Hole Symposium, further USD/JPY gains are on the table. However, FOMC members must align with the Fed Chair to support more hawkish bets on the Fed.

This week, the all-important US Core PCE Price Index and US Jobs Report could cement the September Fed decision. However, US economic indicators are unlikely to influence sentiment toward Fed monetary policy today. Investors will likely ignore the Dallas Fed Manufacturing Index numbers.

With the US manufacturing sector accounting for less than 30% of the US economy, the focus will remain on service sector activity, wage growth, and inflation.

USD/JPY Price Action

Daily Chart

The Daily Chart showed the USD/JPY below the 146.6 – 147.3 resistance band. After the Friday gain, the USD/JPY pulled further away from the 50-day and 200-day EMAs, sending bullish near and longer-term price signals.

Looking at the 14-Daily RSI, 63.59 reflects bullish sentiment, supporting a move through the lower level of the 146.6 – 147.3 resistance band. However, a USD/JPY return to sub-146 would bring the upper level of the 145.0 – 144.3 support band and sub-145 into play.

4-Hourly Chart

Looking at the 4-Hourly Chart, the USD/JPY faces resistance at 146.5. The USD/JPY hovers below the 146.6 – 147.3 resistance band. However, the USD/JPY holds above the 50-day and 200-day EMAs, affirming the bullish near and longer-term price signals.

The 14-4H RSI reading of 63.77 reflects bullish sentiment, with buying pressure outweighing selling pressure. The RSI and EMAs signal a move through the lower level of the 146.6 – 147.3 resistance band to give the bulls a run at 147. However, a fall through 50-day EMA would bring the 145.0 – 144.3 support band and sub-145 into view.