USD/JPY. Analysis and Forecast

[Ben Graham]

Today, Friday, the USD/JPY pair is strengthening for the third consecutive day, reaching a new weekly high. According to data released today, Japan's core inflation indicator has fallen to its lowest level in the past two years, weakening expectations of imminent monetary policy tightening by the Bank of Japan. This has further deteriorated the yen's position against the dollar.

Additional pressure on the Japanese yen comes from concerns about the sustainability of Japan's public finances, which supports further gains in the pair.

At the same time, Japanese Prime Minister Sanae Takaichi confirmed her intention to gradually reduce the debt-to-GDP ratio and restore the country's fiscal stability, partially easing market concerns and limiting pressure on the national currency.

Meanwhile, the U.S. dollar is trading steadily, remaining near yesterday's high amid reduced expectations of aggressive easing by the Federal Reserve, which is also pushing USD/JPY higher.

At the same time, market participants remain convinced that the Bank of Japan will maintain its course toward gradual monetary policy tightening. This highlights a significant divergence from the growing view that the Federal Reserve will cut borrowing costs at least twice this year, which is limiting further gains in USD/JPY.

Today, for better trading opportunities, attention should be paid to the release of U.S. data, particularly the Personal Consumption Expenditures (PCE) Index, which could provide new momentum to the pair.

From a technical perspective, the pair's move above the 20-day and 100-day SMAs favors the bulls. The Relative Strength Index is gradually moving into positive territory, which also confirms the bulls' optimistic sentiment. However, overall, it is still too early to speak of a decisive bullish victory in the market. Therefore, traders with a bullish bias should exercise caution.

The material has been provided by InstaForex Company - www.instaforex.com