USD/JPY Price Forecast: Traders opt to wait for FOMC/BoJ policy meetings this week

• USD/JPY enters a bullish consolidation phase near a multi-week high touched earlier this Monday.
• Doubts over BoJ’s rate-hike plans continue to undermine the JPY and lend support to the major.
• Retreating US bond yields keeps the USD bulls on the defensive and acts as a headwind for the pair.
• Traders also seem reluctant to place aggressive bets ahead of this week’s key FOMC/BoJ meetings.

The USD/JPY pair seesaws between tepid gains/minor losses through the early European session and consolidates its recent move up to the 154.00 neighborhood, or a near three-week top touched this Monday. The Japanese Yen (JPY) got a minor lift at the start of a new week following the better-than-expected macro data from Japan. Apart from this, a modest pullback in the US Treasury bond yields exerts some downward pressure on the US Dollar (USD) and offers some support to the lower-yielding JPY. 

Government data released earlier today showed that Japan's core machinery orders rose 2.1% in October and registered a strong growth of 5.6% on a year-on-year basis. Adding to this, the au Jibun Bank Japan Services Purchasing Managers’ Index (PMI) rose to 50.8 in December from 50.1 previous, while the gauge for the services sector improved to 51.4 from 50.5 in November. That said, the Manufacturing PMI remained in contraction territory for the sixth straight month amid sluggish overseas demand for goods. 

The market reaction, however, turns out to be short-lived amid bets that the Bank of Japan (BoJ) will not raise interest rates later this week. In fact, a Bloomberg report said last week that BoJ officials see little cost to waiting before raising interest rates while still being open to a hike depending on data and market developments. Moreover, Reuters reported that the BoJ is leaning toward keeping rates steady as policymakers prefer to spend more time scrutinising overseas risks and clues on next year's wage outlook. 

Adding to this, the recent upsurge in the US Treasury bond yields, bolstered by expectations for a less dovish Federal Reserve (Fed), caps the JPY and offers some support to the USD/JPY pair. The upside, however, remains capped at traders opt to wait on the sidelines ahead of the key central bank event risks – the FOMC announcement on Wednesday and the BoJ policy update on Thursday. The decisions should provide cues about the interest rate outlook in the US and Japan, which should drive the USD/JPY pair. 

Technical Outlook

From a technical perspective, some follow-through buying beyond the 154.00 mark will reaffirm a breakout through the 61.8% Fibonacci retracement level of the November-December fall from a multi-month peak and pave the way for further gains. Given that oscillators on the daily chart have just started gaining positive traction, the USD/JPY pair might then climb to the next relevant hurdle, around the 154.55 region, before aiming to reclaim the 155.00 psychological mark. 

On the flip side, weakness below the Asian session low, around the 153.35-153.30 area, could find some support near the 153.00 mark. A convincing break below the latter might expose the very important 200-day Simple Moving Average (SMA) pivotal support near the 152.10-152.00 region. Some follow-through selling might shift the bias in favor of bearish traders and drag the USD/JPY pair towards the 151.00 round figure en route to the 150.00 psychological mark.

USD/JPY daily chart