USD/JPY Outlook: Pair Hits 10-Week High on Yen Weakness

  • The yen weakened as markets lowered expectations for aggressive BoJ rate hikes.
  • The dollar held on to gains made on Thursday.
  • The likelihood of a Fed rate cut in March has fallen to 16.5%.

The USD/JPY outlook was bullish as the currency pair ascended to a 10-week high, propelled by a resilient dollar and a weakening yen. The yen weakened as markets lowered expectations for aggressive rate hikes by the Bank of Japan starting as early as March. On the other hand, the dollar held on to gains made on Thursday after an upbeat employment report.

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Yen’s weakness is back because the market overestimated the pace and size of rate hikes after a BoJ policy shift. BoJ policymakers have recently pushed back on these expectations, saying the shift might be slower than previously thought. 

On Thursday, BoJ deputy governor Uchida dismissed expectations that the central bank would aggressively raise interest rates. Moreover, on Friday, BoJ governor Ueda said that monetary conditions will likely remain easy even as the bank shifts to rate hikes. 

As the yen falls, $152 is becoming a target once again. Therefore, Japanese authorities may start warning of a possible intervention. Notably, Japan’s Finance Minister Suzuki said on Friday morning that he was closely watching currency moves.

Meanwhile, the dollar was heading for a fourth week of gains as data from the US continued pointing to a strong economy. US initial jobless claims fell more than expected last week, indicating labor market strength. 

By Friday, the likelihood of a Fed rate cut in March had fallen to 16.5%, down from 65.9% a month ago.

USD/JPY key events today

There won’t be any high-impact economic reports from the US or Japan today. Therefore, it might lead to thin trading for the pair.

USD/JPY technical outlook: Bullish momentum shatters 148.51 resistance level

USD/JPY technical outlook
USD/JPY 4-hour chart

On the technical side, USD/JPY has broken above the 148.51 resistance level, indicating a bullish momentum surge. This has aligned conditions for a bullish trend. First, the price has made a higher low and high. Second, it has respected the 30-SMA as support. Finally, the RSI trades near the overbought level, showing solid bullish momentum.

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However, the price might soon pull back as it approaches a solid resistance zone. Just above the current price level lies the 1.27 fib extension and the 150.00 key levels. This resistance zone might temporarily pause the rally.

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