USD/JPY Forecast: Bullish potential remains intact as 100-hour SMA holds key for intraday traders

• USD/JPY climbs back closer to the year-to-date peak on Monday as it catches fresh bids.
• The Fed-BoJ policy divergence continues to undermine the JPY.
• Intervention fears might cap gains ahead of this week’s key releases from the US.

The USD/JPY pair kicks off the new week on a positive note and reverses a major part of Friday's retracement slide from its highest level since November 2022. Spot prices stick to intraday gains heading into the European session, though might struggle to capitalize on the move beyond the 145.00 psychological mark. Speculations that Japanese authorities will intervene in the markets to support the weakened domestic currency might turn out to be a key factor that could keep a lid on any further gains for the major. The downside, however, remains cushioned in the wake of a big divergence in the monetary policy stance adopted by the Bank of Japan (BoJ) and other major central banks, including the Federal Reserve (Fed).

In fact, market participants seem convinced that BoJ's negative interest-rate policy will remain in place at least until next year. Moreover, BoJ Governor Kazuo Ueda recently ruled out the possibility of any change in ultra-loose policy settings and signalled no immediate plans to alter the yield curve control measures. In contrast, Fed Chair Jerome Powell reiterated last week that two more rate increases are likely by the end of this year. The markets were quick to react and are pricing in a nearly 85% chance of a 25 bps lift-off at the upcoming FOMC meeting on July 25-26. This remains supportive of elevated US Treasury bond yields, which revives the US Dollar (USD) demand and should lend support to the USD/JPY pair.

That said, the release of mixed US inflation data on Friday boosted hopes that the Fed will eventually soften its hawkish stance, sooner rather than later. The US Bureau of Economic Analysis reported that the annual PCE Price Index decelerated to 3.8% in May from the 4.3% previous. Additional details showed that US consumer spending slowed sharply in May and the Core PCE Price Index, excluding the volatile food and energy components, ticked down to 4.6% during the reported month from the 4.7% in April. The gauge, however, remains well above the Fed's 2% target and supports prospects for further policy tightening. This favours the USD bulls and should act as a tailwind for the USD/JPY pair.

Market attention turns to important US macro data scheduled at the beginning of a new month, starting with the release of the ISM Manufacturing PMI during the North American session this Monday. The focus, however, will remain glued to the FOMC meeting minutes on Wednesday, which will be looked for fresh cues about the future rate-hike path. Apart from this, the closely-watched US monthly employment details – popularly known as NFP on Friday – should influence the near-term USD price dynamics and determine the next leg of a directional move for the USD/JPY pair. The aforementioned fundamental backdrop, meanwhile, still suggests that the path of least resistance for spot prices remains to the upside.

Technical Outlook

From a technical perspective, spot prices manage to find decent support and stall the retracement slide from the YTD peak near the 100-hour Simple Moving Average (SMA). The said support is currently pegged around the 144.30-144.20 area, or the Asian session low, which shoudl now act as a pivotal point. A convincing break below might prompt some technical selling and drag the USD/JPY pair further towards the 143.60-143.50 horizontal support en route to the 143.00 round-figure mark. The corrective decline could get extended further towards the 142.65 intermediate support, though any subsequent fall is more likely to attract fresh buyers near the 142.00 resistance breakpoint.

On the flip side, bulls might now wait for sustained strength and acceptance above the 145.00 mark before positioning for any further gains against the backdrop of a slightly overbought Relative Strength Index (RSI) on the daily chart. The USD/JPY pair, however, seems poised to surpass the 145.35-145.40 intermediate barrier and aim towards reclaiming the 146.00 round figure. Some follow-through buying should pave the way for a move towards the 146.25-146.30 region en route to the 147.00 mark and the next relevant hurdle near the 147.45-147.50 region.