rose to 159.36 midweek, and the Japanese yen lost ground for the second day in a row. The market is pricing in the Bank of Japan's policy outlook ahead of next week's meeting.
The regulator is likely to keep rates unchanged as it continues to analyze the impact of the Middle East conflict on the economy. At the same time, a signal to return to policy normalization could emerge in June.
A revision of the forecasts is also expected. Inflation data may be revised upwards amid rising energy prices, while economic growth forecasts may be revised downwards due to external risks.
On the positive side, Japan's exports grew for the seventh consecutive month, supported by demand from China and ASEAN countries.
Additional pressure on the yen comes from the strengthening of the US dollar following the failure of the second round of negotiations between the United States and Iran, although the ceasefire has been formally extended.
Technical analysis
On the H4 chart, USD/JPY formed a consolidation range around the 159.02 level and rose to 159.62. A correction to 159.02 is likely, followed by a possible rise to 160.44. Subsequently, a downward move may develop towards 157.70, with a possible extension to 156.00. Technically, this scenario is confirmed by the MACD indicator, with its signal line above the zero level and pointing firmly upwards, reflecting the possibility of the bullish movement continuing.
According to the H1 chart, the market is forming a descending wave structure to 159.00. Thereafter an upward movement towards 160.44 is possible. The scenario is confirmed by the stochastic oscillator, with its signal line below the 50 level and pointing firmly towards 20, indicating that short-term bearish potential persists.
Conclusion
USD/JPY continues to rise as market doubts over the Bank of Japan's policy direction weigh on the yen. With the BoJ expected to hold rates steady at next week's meeting as it assesses the impact of the Middle East conflict, a potential signal for policy normalization may not come until June.
Upward revisions to inflation forecasts and downward revisions to growth expectations add to the complex outlook. While strengthening exports provide some positive news, pressure remains on the yen due to a firmer dollar following the failure of US-Iran talks. Technically, a further rise towards 160.44 appears likely before any sustained pullback, with the direction of the pair dependent on signals from the Bank of Japan next week.
By RoboForex Analysis Department
Disclaimer:
Any forecast contained herein is based on the author's personal opinion. This analysis cannot be considered trading advice. RoboForex assumes no responsibility for trading results based on the trading recommendations and reviews contained herein.
