USD/JPY forecast: Yen soars on BoJ's hawkish comments

USD/JPY forecast: Yen soars on hawkish comments from BoJ’s Ueda

The Japanese yen (USD/JPY) jumped on Monday, driven by recent remarks from Bank of Japan (BoJ) Governor Kazuo Ueda, who ignited optimism that the country might soon transition away from negative interest rates. Meanwhile, the dollar (USDX) weakened in anticipation of this week's crucial U.S. inflation report.

The greenback experienced a decline ahead of the forthcoming U.S. inflation figures set to be released on Wednesday. Traders are closely monitoring whether the world's largest economy is heading towards a "soft landing" and whether the U.S. Federal Reserve (Fed) intends to further increase interest rates.

The Japanese currency, on the other hand, strengthened by 0.67% against the dollar, reaching a level of 146.85 per USD. The dollar to yen rate previously surged by over 1% to reach 145.91, marking its highest level since September 1. This boost was attributed to comments made by Ueda over the past weekend, suggesting that the central bank might consider abandoning its negative interest rate policy once it gets closer to achieving its 2% inflation target.

In an interview with the Yomiuri newspaper, Ueda indicated that by the end of the year, the BOJ could have collected enough data to make a determination regarding the discontinuation of negative interest rates.

"It seems that Ueda's comments were intended to stop the yen's slide against the dollar," Takehiko Masuzawa, trading head at Phillip Securities Japan, said in a comment to Reuters. "His comments are working almost the same as government intervention."

The yen has experienced a significant decline in value versus the dollar this year, primarily due to a growing interest rate gap with the United States. The Federal Reserve has aggressively pursued a tightening monetary policy, while the BoJ has continued to adhere to a more dovish stance, causing the dollar to yen rate to rise from 128.00 in early February to the current 146.5, as per Marketwatch.

Meanwhile, economic data has shown that Japan's economy expanded by 4.8% on an annualized basis during the second quarter. This figure was revised downward from the initial estimate of 6% growth and fell short of market forecasts, which had anticipated a 5.5% expansion.

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USD/JPY forecast: Analysts see further strength for yen going forward

In a comment on Monday, Francesco Pesole, an FX analyst at Dutch bank ING, agreed with Masuzawa’s assessment of Ueda’s comments acting as a form of government support. He noted that the USD/JPY currency pair was overbought and could test the 146.00 level:

The bank’s dollar to yen forecast, last updated on August 31, indicated that it sees a further strengthening of the Japanese currency going forward. ING’s USD/JPY forecast for Q4 2023 saw the pair trading at 130.00, and then dropping to a potential average of 125.00 in Q1 2024. ING’s forecast for the remaining three quarters in 2024 indicated a further drop to 120.00.

Pesole added that the USD/JPY projection was highly dependent on U.S. economic data, which could prove supportive for the dollar:

In his G10 FX Daily overview on September 11, Scotiabank’s Chief FX Strategist Shaun Osborne also stressed the importance of key U.S. data ahead, such as the monthly CPI reading, which will be released this week:

Danske Bank’s forex overview, last updated in late August, broadly agreed with ING, and projected a gradual fall in the USD/JPY rate going forward:

When considering foreign currency (forex) for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss. Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.