USD/JPY Forex Technical Analysis – Flat Trade Ahead of Start of BOJ Policy Meeting

The Dollar/Yen is edging higher late in the session on Tuesday with investors cautiously looking ahead to the Bank of Japan’s policy meeting on Wednesday and Thursday, which is expected to keep its ultra-loose policy in place amid concerns the yen’s decades-low weakness will add to the cost of imported commodities and widen the country’s trade deficit.

At 19:38 GMT, the USD/JPY is trading 138.223, up 0.091 or +0.07%. The Invesco CurrencyShares Japanese Yen Trust ETF (FXY) is at $67.71, down $0.07 or -0.10%.

The BOJ is expected to reiterate its resolve to keep monetary policy ultra-loose and remain a dovish outlier as many other central banks raise interest rates, a commitment that could lead to further falls in the yen.

While other central bankers around the world are scrambling to cool stubbornly high inflation without triggering a global recession, the BOJ is in no rush to withdraw its massive stimulus, with Japan’s economy yet to recover to pre-pandemic levels and inflation – at slightly above its 2% target – well below that of other advanced nations.

“If necessary, we’ll take additional monetary easing steps without hesitation with an eye on the impact of the pandemic,” BOJ Governor Haruhiko Kuroda said on Monday.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through 139.389 will signal a resumption of the uptrend. A move through 134.750 will change the main trend to down.

The minor range is 134.750 to 139.389. Its pivot at 137.070 is the nearest support.

The short-term range is 131.495 to 139.389. Its retracement zone is at 135.442 to 134.511 is controlling the near-term direction of the Forex pair.

Daily Swing Chart Technical Analysis

Trader reaction to the pivot at 137.070 is likely to determine the direction of the USD/JPY into the close on Tuesday.

Prospects of a widening U.S. – Japan interest rate gap pushed the dollar to a fresh 24-year high above 139 yen on July 14.

With the Fed expected to raise its benchmark interest rate 75 basis points on July 27 and the BOJ expected to hold rates at ultra-low levels, we could see a further widening of the interest rate differential, making the U.S. Dollar a more attractive investment.