Yen Weakens as Fed/BOJ Rate Gap Widens Further

The USDJPY pair surged nearly 1% following a significant policy shift by the Bank of Japan (BOJ), signaling a dovish stance that suggests any future tightening of policies will be gradual. This move accentuates the already substantial interest rate differential between the Federal Reserve and the BOJ, thereby favoring the US dollar.

The upward momentum accelerated, extending the recovery phase from a low base of 146.48, where a bear-trap pattern also emerged. The pair reclaimed the psychological threshold of 150, indicating a bullish sentiment.

With the correction from 150.88 to 146.48 almost entirely reversed, the bias remains bullish. A close above 150 would further solidify this stance, setting the stage for a potential retest of the 2024 high at 150.88. Beyond that, breaches of this level could open the door to levels not seen in decades, around 151.90/94.

While daily indicators suggest improvement, caution is warranted due to overbought conditions and negative momentum over a 14-day period, indicating potential resistance ahead for bullish movements.

In terms of downside risk, it’s ideal for pullbacks to remain above the 150 mark, with any downward movements ideally contained above the 20-day moving average at 149.37, to maintain the bullish momentum in the short term.

Attention now shifts to the upcoming Federal Open Market Committee (FOMC) meeting scheduled for Wednesday, where markets anticipate further insights into the Federal Reserve’s future actions, with a June rate cut widely anticipated.

Res: 150.88; 151.43; 151.90; 151.94

Sup: 150.00; 149.37; 148.92; 148.35