Japanese yen has been on the rise in recent days, with USDJPY experiencing a significant correction in the ongoing uptrend. JPY strength is driven by rising odds that Bank of Japan will decide to hike rates when it meets next week on Wednesday. Money markets are currently an around-65% chance of BoJ delivering a 10 basis point hike at the coming meeting. Also, it is expected that BoJ will unveil at a meeting plans to halve bond buying in the coming years. As a hike is not fully priced-in, it could support JPY. Of course, a lot will also depend on guidance. On the other hand, failure to deliver a hike would be seen as big disappointment and JPY would likely take a hit. In such a scenario, resuming main trend and returning to recent highs cannot be ruled out.
There is also another event scheduled for Wednesday, that may help end the ongoing correction on USDJPY - FOMC meeting. US central bank is not expected to deliver a cut before September meeting. However, a very strong US GDP report for Q2 2024 released yesterday, means that Fed has time and comfort to wait before cutting rates in order to see how economic data develops. While any clear and direct statements that rate cut will not be made in September are unlikely, any hint of it could provide support for USD, and therefore fuel for an upward move on USDJPY.
Taking a look at USDJPY chart at D1 interval, we can see that the pair is trading around 5% below its record highs from the first half of July. The pair has been trading over 1% lower yesterday, but managed to recover all the losses after release of strong US GDP data. A point to note is that daily low yesterday was reach almost exactly at the 200-session moving average (purple line). Successful defence of this level by buyers can be seen as bullish technical signal. However, traders should keep in mind that Fed and BoJ meetings next week are big risk events for the pair and caution is advised while trading USDJPY up to and on Wednesday next week.
Source: xStation5
