USD/JPY Price Forecast: Post-BoJ slide could be seen as buying opportunity, US PCE data in focus

• USD/JPY comes under heavy selling pressure in reaction to BoJ’s hawkish hints.
• The USD hangs near the weekly low and exerts additional pressure on the pair.
• Bets for smaller Fed rate cuts should limit losses ahead of the US PCE Price Index.

The USD/JPY pair attracts heavy intraday selling after the Bank of Japan (BoJ) announced its decision on Thursday and dives to the 152.00 neighborhood, or a fresh weekly low during the early European session. As was widely anticipated, the BoJ decided to leave monetary policy settings unchanged on the back of a rare political turmoil after Sunday’s snap election in Japan. In the accompanying statement, however, the BoJ reiterated that it will keep hiking borrowing costs if the economy sustains a moderate recovery and prices move in line with the forecast. This, in turn, provides a goodish lift to the Japanese Yen (JPY).

Furthermore, BoJ Governor Kazuo Ueda said that the central bank will keep adjusting the degree of easing if the economic and price outlook is to be realized. Ueda added that the BoJ will monitor financial and foreign exchange markets and their impact on the economy and prices. This, in turn, keeps a potential interest rate hike at the next BoJ policy meeting in December on the table, which, along with a softer risk tone, benefits the safe-haven JPY. Meanwhile, the US Dollar (USD) languishes near the weekly low touched on Wednesday and drags the USD/JPY pair away from a three-month high touched earlier this week. 

Any meaningful USD downfall, however, seems elusive in the wake of growing acceptance that the Federal Reserve (Fed) will proceed with smaller interest rate cuts. The bets were reaffirmed by Wednesday's US macro data, which suggested that the economy remains on strong footing and supports prospects for a less aggressive policy easing by the Fed. The ADP reported on Wednesday that private-sector employers added 233K new jobs in October, surpassing even the most optimistic estimates. Adding to this, the previous month's reading was revised higher to 159K, pointing to a still resilient US labor market. 

Separately, the US Bureau of Economic Analysis' initial estimate suggested that the world's largest economy expanded by a 2.8% annualized pace during the third quarter, slower than the 3% growth recorded during the April-June period. The US economy, however, has shown shows no signs of slowing down and continues to outperform its global peers. Adding to this, a further rise in the US Treasury bond yields, bolstered by concerns that the spending plans of Vice President Kamala Harris and the Republican nominee Donald Trump will further increase the US fiscal deficit, should continue to underpin the USD. 

Traders might also refrain from placing aggressive directional bets and prefer to wait on the sidelines ahead of the release of the US Personal Consumption Expenditure (PCE) Price Index later during the North American session. The crucial inflation data should provide some cues about the Fed's interest rate outlook, which, in turn, will drive the USD demand and provide some meaningful impetus to the USD/JPY pair. Nevertheless, the aforementioned fundamental backdrop warrants some caution before confirming that spot prices have topped out in the near term and positioning for any meaningful corrective decline. 

Technical Outlook

From a technical perspective, Thursday's slide comes on the back of the recent repeated failures to find acceptance or build on the momentum beyond the 61.8% Fibonacci retracement level of the July-September downfall. Moreover, the Relative Strength Index (RSI) on the daily chart remains close to the overbought territory, warranting some caution before placing fresh bullish bets around the USD/JPY pair.

Any further weakness below the 152.00 mark, however, is likely to find decent support near the 151.45 area ahead of the 151.00 round-figure mark. Some follow-through selling might expose the 150.60-150.50 confluence resistance breakpoint – comprising the 100-day Simple Moving Average (SMA) and the 50% Fibo. level. The latter should now act as a key pivotal point and a strong base for the USD/JPY pair, which if broken decisively will set the stage for a further near-term depreciating move.

On the flip side, the 152.50-152.55 region now seems to act as an immediate hurdle ahead of the 153.00 round figure. A sustained strength beyond the latter could lift the USD/JPY pair back towards the 153.85-153.90 area, or the highest level since July 31 touched earlier this week. The subsequent breakout through the 154.00 round-figure mark will be seen as a fresh trigger for bulls and lift spot prices to the 154.35-154.40 supply zone en route to the 155.00 psychological mark and the late-July swing high, around the 155.20 region.

USD/JPY daily chart