The USD/JPY currency cross has experienced very strong buying for the third day in a row. It shot up to a three-week high during Thursday’s early European session. The duo moved quickly up to the mid-144.00s after the Bank of Japan (BoJ) made its dovish pause, taking rates unchanged, spurring yen weakness. This rally is marked by extremely bullish support from a number of important bullish factors. Positive turns in economic forecasts at the BoJ, as well as cooling trade tensions between the US and China, have lifted global risk sentiment.
Market participants are watching these changes with great interest. The technical indicators on the daily chart of USD/JPY have not yet confirmed a bullish bias, so traders should proceed with caution. Next, all eyes focus to the next release of economic data, especially in the current re-opened environment. This includes the key US Nonfarm Payrolls (NFP) report due Friday, which could provide fresh clues on the Federal Reserve’s policy direction and further shape the USD/JPY path.
Factors Driving the USD/JPY Rally
The recent move in USD/JPY comes from that fact that BoJ has decided to stay dovish. At the same time, they’ve lowered their economic growth and inflation forecasts significantly. In response, the central bank has lowered expectations for Japanese economic growth to a meager 0.5% for the current fiscal year. This is a shocking drop from the previous forecast of 1.1% issued just in January. This change has had a major effect on the value of the Japanese yen. Consequently, traders are rushing to grab latest opportunities to put investments in the US dollar.
Traders are growing increasingly optimistic that the Federal Reserve will soon begin cutting interest rates. Their previous prediction was a cut of 50 bps max at the end of this year. This attitude makes USD/JPY look even more attractive. Investors are keenly hungry for those elevated yields linked to the US dollar, particularly as outlooks for Japanese economic growth falter.
Technical Indicators and Market Sentiment
Another market displaying strong bullish momentum is the USD/JPY. Let’s not get ahead of ourselves, as the technical indicators on the daily chart have yet to confirm a longer-term positive bias just yet. The 100-period Simple Moving Average (SMA) on the 4-hour chart sits near the 143.00 level. As such, this level can act as powerful support, perhaps keeping a lid on any bearish advances on the pair.
As such, a firm break below the 100-period SMA may change the near-term bias in favor of bearish traders. Doing so would risk triggering unwarranted and disorderly declines in USD/JPY. The psychological round number at 144.00 gives us very quick downside protection. This would indicate that any additional decline would be considered a buying opportunity by the more active market participants.
Furthermore, strong resistance levels are hanging around the psychological level of 145.00. If USD/JPY clears this barrier, it will probably be aiming for the 50% Fibonacci retracement level next. This move would increase optimistic sentiment among traders.
Upcoming Economic Data and Market Outlook
As a result, attention is intensely focused on the upcoming US economic docket. It’ll be landing right before the Weekly Initial Jobless Claims release and ISM Manufacturing PMI data. Traders closely follow these reports for fresh clues to the direction of the USD’s value against yen. They are particularly keyed up on the next labour market report (NFP) due this Friday.
Indeed, market optimism has been partially lifted by positive expectations about de-escalation with trade ties between US and China. More of this positivity would sustain an entrenched bullish environment for USD/JPY as investors keep cautious optimism alive for ever-imminent stable economic transition.