USD/JPY Forecast: Yen Reacts to Geopolitical Strains and Bank of Japan Speculations

Highlights

• On Friday, USD/JPY rallied 0.49%, bouncing back from a 0.41% loss, closing at 149.234.
• FOMC member views on the US Jobs Report will influence the USD/JPY trajectory.
• Rising regional tensions could sway sentiment and monetary policy direction.

Friday Overview of USD/JPY Movements

On Friday, the USD/JPY gained 0.49%. Reversing a 0.41% loss from Thursday, the USD/JPY ended the day at 149.234. The USD/JPY fell to a low of 148.360 before reaching a Friday session high of 149.533.

Geopolitical Tensions and Bank of Japan Tweak Speculation in Focus

The Japanese markets are closed for Health Sports Day on Monday. Trading volumes will likely be on the light side. However, investors may continue to consider a possible tweak to the Bank of Japan’s (BoJ) ultra-loose monetary policy stance.

Last week, speculation of a possible tweak to the Yield Curve Control (YCC) policy and forward guidance drew investor interest. Household spending aligned with BoJ requirements to tweak monetary policy. However, softer-than-expected wage growth remained a hurdle.

Bank of Japan Kazuo Ueda and board members recently discussed the need for wage growth and demand-driven inflation to support a shift away from negative rates.

Rising geopolitical tensions will also likely influence sentiment toward near-term policy shifts. A more widespread conflict across the Middle East may force central banks to reconsider monetary policy goals.

Fed Speeches to Kickstart a Big Week for the Greenback

Later today, investors will turn their attention to the Fed. FOMC members Lorie Logan, Philip Jefferson, and Michael Barr are on the economic calendar to speak today.

Discussions relating to the US Jobs Report and the likely influence on the Fed rate path will garner investor interest. Hawkish Fed comments despite softer wage growth would drive buyer appetite for the US dollar. However, FOMC members may also discuss the possible implications of a regional Middle East conflict on the Fed interest rate trajectory.

Short-term Forecast

Monetary policy divergence remains tilted in favor of the US dollar despite the softer US wage growth numbers. Weaker-than-expected wage growth figures from Japan may leave the BoJ in ultra-loose policy mode. Rising geopolitical tensions may also force the BoJ to favor the status quo.

USD/JPY Price Action

Daily Chart

The USD/JPY sat above the 50-day and 200-day EMAs, affirming bullish price signals. A return to 149.500 would support a move to the 150.293 resistance level.

Hawkish Fed comments would support more upside for the US dollar.

However, dovish Fed comments would support a drop below the 148.405 support level to target sub-147 support levels. Buying pressure will likely build at the 146.649 support level. The 50-day EMA is confluent with the support level.

The 14-day RSI at 59.15 indicates a USD/JPY return to 150 before entering overbought territory.

4-Hourly Chart

The USD/JPY sits above the 50-day and 200-day EMAs, sending bullish price signals. Avoiding a fall through the 50-day EMA would support a USD/JPY move to the 150.293 resistance level.

However, a break below the 50-day EMA would bring the 148.405 support level into play.

The 52.32 14-4 Hourly RSI indicates a USD/JPY return to 150 before entering overbought territory.