Dollar Holds Firm Against Yen

USDJPY remains worryingly close to highs on the back of the recent BOJ and FOMC meetings. A more hawkish tone from the Fed has seen the Dollar well supported on the back of the June FOMC. Powell and co revised the bank’s inflation forecasts highs and scaled back easing projections from 3 rate cuts this year to just 1. The fallout has seen USD remaining well bid with traders now questioning whether a cut is likely in September or if the bank is likely to hold off until later in the year. Powell warned that inflation is still too high and will likely see the Fed’s easing cycle being delayed.

BOJ Outlook

At its last meeting this month, the BOJ held rates unchanged and kept bond purchases in place though noted that it was in discussions to reduce the amount of bond purchases and would announce details at the July meeting. The expectation now is that the BOJ will begin quantitative tightening in July. Some players are also noting the risk that the bank might opt for a surprise rate hike too to ramp up the effectiveness of QT. If seen, this should be firmly bullish for JPY, sending USDJPY lower near-term. Additionally, if we see US inflation starting to cool at a quicker pace in the coming months, this should bolster September easing expectations, weighing on USD too.

Technical Views

USDJPY

The latest test of 156.18 support has seen the pair turning higher again now testing the 158.28 resistance once more. With momentum studies bullish, focus remains on further upside here. However, with intervention risks seen, there is a clear volatility warning around prior highs. Should we break lower, 151.81 will be the key support to watch.