USD/JPY Forecast: Bank of Japan’s Hawkish Tone Fuels Yen Rally

• The BoJ will continue to raise interest rates if inflation picks up as expected.

• Economists expect at least one rate hike before the end of the year.

• Investors brace for the US Consumer Price Index report.

The USD/JPY forecast shows renewed bearish momentum after the yen gained over 1% against the dollar following the Bank of Japan’s dovish remarks. At the same time, the dollar was fragile a day after the US presidential debate showed Kamala Harris in a stronger position.

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On Wednesday, Bank of Japan board member Junko Nakagawa said the central bank would continue to raise interest rates if inflation rebounded as expected. She also said last month’s volatility had not changed the BoJ’s target of higher interest rates. Higher borrowing costs in Japan will narrow the gap between US and Japanese rates, boosting the yen.

However, investors do not expect the central bank to hike this month. Meanwhile, economists predict at least one such move before the end of the year.

The yen also gained as the US presidential debate weakened the dollar. The debate added to the stakes of Kamala winning and being removed by Trump, reducing the likelihood of higher tariffs and more government spending. The idea of ​​a Trump win has always boosted the dollar as it could raise interest rates.

Meanwhile, investors are gearing up for the US Consumer Price Index report, which could provide more guidance on the size of the Fed’s next interest rate cut. Economists expect inflation to hit the 2% target, with the headline figure reaching 2.9%. A softer-than-expected print could lead to a more accommodative Fed. On the other hand, flat numbers could suggest a gradual cycle of rate cuts.

Key USD/JPY Events Today

• US core CPI m/m
• US CPI m/m
• US CPI y/y

USD/JPY Technical Forecast: Rising RSI Divergence

Technically, USD/JPY made a new low after breaking below the 142.00 support level. The price is trading well below the 30-SMA, indicating a bearish trend. At the same time, the RSI supports the bearish momentum below 50.

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However, he made an optimistic divergence. While the price went down, the RSI made a higher one. This shows that bearish momentum is fading. In this case, the price could soon return to the 30-SMA to challenge the bearish trend.

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