Japanese Yen Surges to 7-Month High Due to Fed Rate Hikes

The Japanese yen experienced a sharp decline on Thursday, with the USD/JPY rate surging to its highest level in seven months. During the European session, USD/JPY traded at 141.24, marking an increase of 0.81%. Earlier in the day, the yen dropped to 141.50, its lowest level since November, as market participants reacted to the Federal Reserve’s hawkish stance.

Federal Reserve Hints at Future Rate Hikes, BOJ Decision Awaited

Expectations of a pause from the Federal Reserve were completely shattered by Chair Jerome Powell. He delivered a hawkish message during the Wednesday meeting. The rate statement indicated that more rate hikes are on the horizon. The upward revisions to growth and inflation projections for the fourth quarter. While Powell maintained that no decision had been made for the July meeting, the market has already priced in a 71% probability of a hike, anticipating a continuation of the rate tightening cycle.

The focus now shifts to the Bank of Japan’s meeting on Friday. With the central bank’s ultra-loose monetary policy in place, the market expects the BOJ to maintain its key policy settings. The Bank may also comment on the yen’s depreciation, as Chief Cabinet Secretary Hirokazu Matsuno expressed concerns over excessive moves in the exchange rate. If the yen’s decline persists, further warnings from Tokyo are likely, possibly even intervention to support the currency.

Technical Analysis and Forecasts for USD/JPY

From a technical standpoint, USD/JPY rate is currently testing resistance at 141.21, with further resistance seen at 141.97. On the downside, support levels lie at 140.29 and 139.53. The currency pair’s upward momentum, along with the Fed’s hawkish signals, could continue until the exposure of the Bank of Japan’s decision. However, a potential intervention from the BOJ or Japanese government may introduce volatility and impact the pair’s performance.

The overall short-term sentiment for the Japanese yen appears to be bullish. The Federal Reserve’s indications of future rate hikes, coupled with the support from higher Treasury yields, contribute to a favorable outlook for the currency pair. However, ongoing market dynamics and geopolitical factors should be considered, as they can influence the pair’s trajectory. Currently, USD/JPY surpasses key resistance levels. Therefore, attention turns to 142.216, a level that may trigger profit-taking or intervention by Japanese authorities.

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