- USD/JPY closed Wednesday at 148.34, up by 0.33%.
- The Fed kept rates steady but signalled high rates will be kept for longer.
- Monetary policy divergences could weaken the JPY still.
On Wednesday, the USD/JPY closed with gains above 148.00 as the USD got a boost amid the hawkish Federal Reserve (Fed) stance, which fueled US yields to multi-year highs.
As expected, the US Federal Reserve kept interest rates unchanged at 5.25%-5.50%. Still, it surprised the market with its projections to keep rates at 5.1% for 2024 (revised from 4.6%) and virtually sent a message that it will keep rates at restrictive levels for a longer time. In addition, the projections for rates in 2023, via the so-called dot plots, were held at 5.6% and signalled one last hike in the remainder of the year, and markets are placing bets for it to be in December.
As a reaction, the short-term US yields rose to multi-year highs, with the 2,5 and 10-year rates advancing to 5.17%, 4.57% and 4.40%, respectively, making the US Dollar gain interest.
On the JPY’s side, eyes are on Friday's Bank of Japan (BoJ) meeting decision. The bank has already stated that changes to monetary policy won't be considered until local wage and inflation indicators match their projections. However, markets will look for any clues to start discounting a potential lift-off in the near term. In the meantime, as the Fed’s tightening cycle isn’t over, divergences between the two banks will continue weakening the Yen unless the BoJ leaves its ultra-dovish stance.
USD/JPY Levels to watch
Based on the daily chart analysis, a bullish outlook is noted for USD/JPY in the near term. The Relative Strength Index (RSI) stands above its midline in positive territory, further validated by the decreasing red bars on the Moving Average Convergence Divergence (MACD). In addition, the pair is above the 20,100,200-day Simple Moving Average (SMA), indicating that the bulls are in command of the broader picture.
Support levels: 147.80, 147.10 (20-day SMA), 146.00.
Resistance levels: 148.50, 149.00, 150.00.
USD/JPY Daily Chart
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