USD/JPY Forecast: Dollar/Yen Stable Ahead of US GDP Data, BOJ Decision in Focus

Highlights

• BOJ expected to maintain ultra-easy policy.
• Traders await US GDP report and Fed’s monetary policy decision.
• Banking contagion and debt ceiling risks may impact USD/JPY.

Overview

Ahead of the Bank of Japan’s (BOJ) upcoming monetary policy decisions on Friday, the Dollar/Yen currency pair remained relatively stable on Thursday. The prevailing market expectation is that BOJ Governor Haruhiko Kuroda will maintain the current ultra-easy policy settings. However, due to the surprise decision in December to double the 10-year bond yield band, no one is completely ruling out the possibility of another unexpected move.

At 07:43 GMT, the USD/JPY is trading $133.545, up $0.082 or +0.06%. On Wednesday, the Invesco CurrencyShares Japanese Yen Trust ETF (FXY) settled at $69.67, down $0.11 or 0.16%.

Traders Brace for Impact of US GDP Report

Traders who deal in Dollar/Yen are preparing for the release of a report on the growth of the U.S. economy at 12:30 GMT. This report could have an impact on the monetary policy decisions of the Federal Reserve next week.

The GDPNow tool of the Atlanta Federal Reserve tracks how new data affects the estimated gross domestic product (GDP). According to this tool, the estimate for first-quarter growth has dropped sharply from 2.5% to an annualized 1.1% in just one week. This suggests that there may be a downside risk to the U.S. first-quarter GDP data.

Analysts polled by Reuters are forecasting an expansion of 2%. Wells Fargo has lowered its forecast for U.S. GDP growth by 100 basis points to a 0.8% increase. The futures for Fed funds are pricing in a 75% chance that the Federal Reserve will raise interest rates by 25 basis points (bps) at its May meeting next week. This figure could change following the release of the first-quarter GDP data.

Treasury Yields Rise Amid Debt Ceiling Concerns

Overnight, U.S. Treasuries yields saw a modest increase, with the two-year yield rising by 3 basis points to 3.953% and the ten-year yield increasing by 2 bps to 3.4504%. In contrast, one-month Treasury yields experienced a drop due to the potential Washington vote on the U.S. debt ceiling. These developments are providing support for the USD/JPY early Thursday.

USD/JPY Suppressed by Banking Risks

Banking contagion risks in the United States, the debt ceiling standoff, and the possibility of a recession may be suppressing the USD/JPY currency pair. The downbeat sentiment was further compounded by the ongoing decline of First Republic Bank’s stock, as well as continued uncertainty surrounding the extension of the U.S. debt ceiling.

Technical Analysis

Looking at the USD/JPY from a daily technical perspective, it is currently trading above its daily PIVOT at $133.443, indicating strength. However, it has yet to surpass the R1 level at $137.245. While the long-term technicals suggest an upward trend, the short-term outlook suggests potential weakness. Thursday’s market will be influenced by how traders react to the $133.443 level.

A sustained upward move beyond the PIVOT at $133.443 would indicate growing buying momentum, which could result in a near-term acceleration towards R1 at $137.245. Conversely, a sustained downward move below the PIVOT at $133.443 would weaken the USD/JPY, making S1 at $128.973 a likely target.

Support and Resistance Line: 

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