Home Tools Monetary Policy Divergence Could Take to 140.00

Monetary Policy Divergence Could Take to 140.00

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  • High US inflation might push the Fed to a more extensive rate hike path.
  • Japan’s government is concerned over the yen’s sharp decline.
  • US PPI is expected to hold at 0.8%.

Today’s USD/JPY forecast is bullish as rising US inflation continues to widen the monetary policy divergence between the US and Japan. In the United States, inflation surprised investors who had expected a rise to 8.8%. Inflation rose to 9.1% in a stubborn move. This development is bound to push the Federal Reserve on a more extensive rate hike path.

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A few days ago, markets knew that the Fed was leading the curve of hefty rate hikes, but that has changed. The Bank of Canada, in a surprise move, hiked rates by 100 bps yesterday in a bid to tame rising inflation. Markets expect the Fed to follow suit, especially after the inflation data. The worst might not be over for the yen.

Japan’s government has recently raised its concern over the weakening yen, saying it would monitor inflation trends and monetary policy changes in the US.

“We are concerned by the yen’s rapid decline in the foreign exchange market recently,” said Chief Cabinet Secretary Hirokazu Matsuno.

USD/JPY key events today

The US will release inflation data that might cause more volatility in the pair. The Producer Price Index is expected to hold at 0.8%. A higher-than-expected value would indicate a rise in inflation, pushing the pair beyond 139.00, while the opposite could result in a pullback.

Later, there will also be a jobs report showing the number of people who registered for unemployment insurance for the first time in the past week. Investors expect the value to hold at 235K.

USD/JPY technical forecast: Past the 139.0 level

USD/JPY forecast

The 4-hour chart shows the story of bulls taking the price to new highs with every candle. The price is trading well above the 30-SMA in a steep move up. RSI is in the overbought region, also favoring bullish momentum.

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The price experienced a bit of resistance at the 137.702 level before breaking above impulsively. It is going through psychological levels without pausing. If bears come in at the overbought region, they might only cause a slight pullback before the price resumes the uptrend. This trend will remain if the price keeps trading above the 30-SMA and the RSI trades above 50.

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