USD/JPY Forecast: Lower as Powell’s Hawkish Testimony Offers No Surprises

Highlights

• USD/JPY slips after uneventful Powell testimony.
• Fed maintains stance on rate increases against inflation.
• Doubts persist over feasibility of additional rate hikes.

Overview

The USD/JPY is inching lower on Thursday following Federal Reserve Chair Jerome Powell’s testimony, which provided little surprise for investors. The dollar slipped 0.06% against the Japanese yen, reaching 141.82 after hitting a seven-month high of 142.362 in the previous session.

Powell Emphasizes Likelihood of More Rate Hikes

During his remarks to lawmakers, Powell reiterated the central bank’s position on further rate increases. He stated that it is a reasonable assumption if the economy continues its current trajectory. This aligns with the recent policy meeting’s statements. Powell emphasized the likelihood of more interest rate hikes as the Federal Reserve strives to combat inflation.

Although the Fed decided to pause its rate-hiking campaign at the previous meeting, they acknowledged that additional rate hikes are probable. Market expectations suggest two 25 basis point increases will occur later this year.

Investors also analyzed recent data on housing starts and building permits in May, which exceeded previous forecasts, in order to gauge the broader state of the U.S. economy.

Powell’s Hawkish Tone Already Priced In

Powell’s testimony did not bring significant surprises, as markets had already priced in a hawkish stance. However, doubts remain regarding the feasibility of two more rate hikes this year.

Losses Limited by BOJ’s Ultra-Dovish Stance

In addition to the Federal Reserve’s position, the Yen faced renewed pressure due to the Bank of Japan’s ultra-dovish stance. BOJ board member Seiji Adachi hinted at a potential policy adjustment in July, albeit unlikely.

Weekly Initial Claims on Tap

Market participants eagerly await Powell’s Semiannual Monetary Policy Report to the Senate Banking Committee for further insights on inflation and interest rates. Moreover, they will monitor the release of weekly jobless claims data, which is expected to show a total of 256,000 according to economists polled by Dow Jones.

Technical Analysis

USD/JPY sentiment is bullish as the Forex pair hovers just shy of a multi-month high at 142.362, reached the previous session. The current price of 141.906 is also higher than the previous 4-hour close. The 200-4H moving average at 137.542 and the 50-4H moving average at 140.864 further support the positive outlook. With a 14-4H RSI reading of 58.67, the market shows moderate strength and potential for further upside.

However, the current price resides within the main resistance area of 141.574 to 141.934, suggesting a possible hurdle for upward movement. Traders should monitor price action closely to identify breakout or reversal signals, providing confirmation for the continuation of the bullish trend.