- Policymakers at the Bank of Japan have adjusted their stance to a more dovish position.
- A majority of economists anticipate that the central bank will lower borrowing costs before the year concludes.
- The dollar experienced a significant rally on Wednesday following ADP employment data that exceeded expectations.
The outlook for USD/JPY indicates a shift in sentiment towards potential Bank of Japan rate hikes, influenced by somewhat dovish comments that have devalued the yen. Concurrently, the US dollar gained strength as private employment data reflected a robust labor market.
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Bank of Japan officials have adopted a less hawkish tone, with board member Asahi Noguchi advocating for a careful approach to rate hikes to prevent economic downturn. Additionally, Prime Minister Shigeru Ishiba remarked that the economy is not ready for increased borrowing costs.
Initially optimistic about rising consumption and inflation, many policymakers, including Ueda, had pushed for more rate hikes, which previously bolstered the yen. This recent shift is likely to continue applying downward pressure on Japan’s currency, yet economists expect the central bank to lower borrowing costs by the end of the year.
On another note, the dollar’s value surged on Wednesday due to ADP employment metrics coming in stronger than anticipated, reflecting a tight labor market. Private sector firms added 143,000 jobs in September, surpassing the expected 124,000. This report followed a rise in job openings that also exceeded forecasts, suggesting resilience in the labor market that supports a gradual easing cycle by the Fed. Consequently, expectations for a 50-bps rate cut in November have diminished.
The forthcoming report detailing monthly employment changes could significantly alter the expectations around rate cuts. A favorable report would further entrench predictions for a smaller rate decrease this November.
Key USD/JPY Events Today
- US unemployment claims
- US ISM Services PMI
Technical Outlook for USD/JPY: Channel Resistance
From a technical perspective, USD/JPY has momentarily stalled near its bullish channel resistance line. It is currently trading well above the 30-SMA, indicating that bullish sentiment remains strong. Meanwhile, the RSI is situated in the overbought territory, reflecting significant bullish momentum.
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USD/JPY has exhibited a pattern of higher highs and higher lows, forming a robust upward trend. However, following a strong rally, bullish traders may take a breather at the channel resistance, potentially allowing bearish traders to regain some ground. In such a scenario, the price may retreat to revisit channel support before either bouncing back higher or breaking through to the downside.
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