The USD/JPY exchange rate dipped to about 160.25 during European trading on Tuesday. This slight decline comes as the Japanese yen (JPY) is performing better than other currencies, following the recent monetary policy updates from the Bank of Japan (BOJ).
As anticipated, the Bank of Japan has increased interest rates by 25 basis points (bps) to 1% at its latest meeting. The bank indicated that they expect inflation to stay above target, implying a continued upward trend in monetary policy.
The BOJ’s Deputy Governor stated, “We will continue to raise policy interest rates based on economic trends, price movements, and financial conditions,” noting that the risk of a significant economic slowdown seems less pronounced than before.
Meanwhile, the US dollar (USD) is expected to experience significant fluctuations as investors prepare for a monetary policy announcement from the Federal Reserve on Wednesday. The Fed is likely to maintain interest rates at 3.50% to 3.75% for the fourth time in a row.
All eyes will be on the comments from new Fed Chairman Kevin Warsh regarding the future outlook of the Fed’s monetary policy.
Technical analysis of USD/JPY
Currently, USD/JPY is trading around 160.34. The spot is above the 20-day exponential moving average (EMA) of 159.77, which reflects its recent upward trend despite signs of consolidation close to cycle highs. This suggests a short-term bullish sentiment.
The Relative Strength Index (RSI) is at 60.42, indicating that while there is still upward momentum, it isn’t in an overly aggressive phase, so the market isn’t yet overbought.
On the support side, the 20-day EMA at 159.77 seems to be holding for now. If it closes below that level, it could trigger a deeper correction towards the low of 158.60 from May 20. Conversely, if it surpasses the high of 160.73 from April 30, we could see a rise towards 161.00.
