USD/JPY price forecast: Will the downtrend continue? – London Business News | Londonlovesbusiness.com

The current price action of the USD/JPY pair at 150.049 on Wednesday reflects complex trading influenced by multiple factors at the intersection of economics and geopolitics.

Despite support around the psychological level of 150.00, the bullish outlook for the Japanese yen could limit further gains.

In my view, the Bank of Japan’s anticipated interest rate hike in December, driven by rising core inflation, is exerting pressure on the current movement.

Tokyo’s Consumer Price Index shows increasing inflationary pressures, enhancing the likelihood of central bank intervention to support the yen.

This factor alone could reshape the pair’s short- and medium-term trajectory, particularly if accompanied by other global developments.

On the geopolitical front, escalating risks create a supportive environment for the yen as a haven. Rising tensions in Ukraine and Donald Trump’s pledges to impose new tariffs are amplifying investor concerns about further global economic disruption. These dynamics not only bolster demand for safe-haven currencies like the yen but also weigh on the U.S. dollar amid market worries over the inflationary impact of potential monetary policy decisions.

Declining U.S. Treasury yields are playing a crucial role in boosting the yen’s appeal. Benchmark 10-year yields have dropped to their lowest levels since October, narrowing the gap between U.S. and Japanese yields. This narrowing reduces the dollar’s advantage over the yen.

Additionally, the U.S. dollar does not appear to have sufficient momentum to sustain a strong upward trend. While it has recovered from a three-week low, the muted gains reflect investor uncertainty regarding the future of U.S. monetary policy. Markets are closely monitoring key U.S. macroeconomic data, such as the upcoming non-farm payrolls report and Federal Reserve Chair Jerome Powell’s speech, for clues on the future direction of interest rates. Expectations for a new 25-basis-point rate cut remain mixed, leaving the dollar caught between competing forecasts of further easing or a halt to rate cuts due to inflation concerns.

From my perspective, Donald Trump’s announced policies of imposing stringent tariffs on BRICS nations and major trading partners like China, Canada, and Mexico could ignite a fresh wave of global trade tensions. This direction has dual implications for both the dollar and the yen. On one hand, it could fuel inflation in the U.S. due to higher import costs, prompting the Federal Reserve to halt rate cuts or even consider hikes. On the other hand, it could enhance the yen’s appeal as a haven amid growing geopolitical uncertainty.

If U.S. bond yields rise as a result of these policies, we may see renewed bullish momentum for the dollar against the yen. However, the impact could be limited if trade tensions continue to increase global risks, driving investors towards lower-yielding assets like the Japanese yen. A scenario that supports this view would involve rising U.S. yields narrowing the gap with Japanese yields, and reducing the yen’s competitive edge.

Economic developments in Japan, such as an 8.1% increase in capital expenditures, also point to a fragile recovery that supports a more hawkish stance by the Bank of Japan. Recent economic data, including Tokyo’s CPI uptick, strengthen the likelihood of a December rate hike, especially given Governor Kazuo Ueda’s readiness for further monetary tightening. In my opinion, these combined factors make the yen a strong competitor, particularly against a dollar that may face volatility from the U.S. administration’s political and trade decisions.

In China, manufacturing and non-manufacturing PMI figures present mixed signals, with hopes for new government stimulus to support the economy. This relative improvement could bolster global risk appetite, potentially easing pressure on both the U.S. dollar and the Japanese yen as attention shifts to global growth prospects.

Considering all these factors, I believe the USD/JPY pair will remain influenced by a mix of economic indicators, monetary policies, and geopolitical tensions. I anticipate volatile performance in the future, as the market balances the dollar’s strength, supported by bond yields, against the potential hawkishness of the Bank of Japan. The pair is likely to fluctuate within a broad range in the short term, with key psychological levels like 150.00 serving as significant trading milestones.

In conclusion, the USD/JPY pair remains caught between shifting economic and geopolitical forces, with a slight bias toward the yen if global tensions escalate and Japan’s monetary policies lean toward further tightening.

Technical analysis of yen (USDJPY) prices

The USD/JPY pair managed to maintain its support above the 100-day Simple Moving Average (SMA) at 148.96, reflecting buyers’ commitment to defending this key level. Recent daily price action has shown the formation of an inverted hammer candlestick, a reversal signal. Should the pair close positively today, it could provide additional momentum for a short-term bullish correction.

Despite the potential for a short-term bullish correction, the overall trend for USD/JPY remains bearish in the short to medium term. According to the technical analysis principle that trends tend to persist, further price declines are likely. The current movement reflects the possibility of a continuation of the downtrend, particularly if the pair breaches key support levels.

If the support level at 149.08 is broken, the decline may extend to the first target at 147.92, based on the 61.8% Fibonacci retracement level of the recent bearish wave. Should selling pressure persist, the next target lies at 147.18, a historically significant level that represents the highest point recorded on September 2. These levels act as key technical magnets for the pair under continued bearish pressure.

Momentum indicators like the MACD reinforce the bearish outlook, with the signal line sloping into negative territory and breaking below the zero line on the daily timeframe. A close below this level further increases the probability of sustained downward pressure. Therefore, monitoring daily closes is crucial to confirming the trend and accurately identifying the next technical levels.

Support Levels:149.171 – 148.732 – 148.004

Resistance Levels: 150.049 – 150.488- 151.216