USDJPY strengthens despite BoJ hawkish signals

The USDJPY rate has remained in a narrow range for the eighth consecutive trading session, with the price currently at 155.87. Find out more in our analysis for 27 January 2025.

USDJPY forecast: key trading points

• On Friday, the Bank of Japan raised the interest rate by 25 basis points to a 16-year high
• BoJ Governor Kazuo Ueda refrained from providing specifics on the timing of further monetary policy tightening
• Japan’s Leading Economic Index was revised upwards to 107.5 points
• Tokyo Coincident Index rose to 115.4, above the preliminary estimate of 115.3
• USDJPY forecast for 27 January 2025: 154.25 and 152.55

Fundamental analysis

The USDJPY rate is on the rise after rebounding from the 155.05 support level. However, the currency pair remains under pressure amid hawkish signals from the Bank of Japan, including statements about the readiness to further tighten monetary policy to curb inflation.

On Friday, the BoJ unexpectedly raised the key interest rate by 25 basis points to 0.5%, the highest level in 16 years. The regulator also expects to achieve the 2% inflation target during the second half of the forecast period, which has fuelled expectations of further rate hikes.

Nevertheless, Bank of Japan Governor Kazuo Ueda refrained from providing specifics on the timing and pace of future monetary policy tightening, which somewhat dampened the initial excitement in the markets and drove growth in the USDJPY pair.

Meanwhile, Japan’s Leading Economic Index, which reflects the economic outlook based on data such as the job openings-to-applicant ratio and consumer sentiment, was revised upwards to 107.5 in November 2024. The reading exceeded the preliminary estimate of 107.0 but remained below the October high of 109.1.

The Coincident Index, which measures the current state of the economy based on industrial production, employment, and retail sales data, rose to 115.4 in November, slightly above the preliminary estimate of 115.3. This indicates a stable but subdued improvement in economic activity.

USDJPY technical analysis

On the H1 chart, the USDJPY quotes are moving within a downtrend. The price is rebounding from the EMA-65 line, indicating pressure from sellers. According to today’s USDJPY forecast, the price is expected to test the key resistance level at 156.50 before continuing its downward trajectory to 154.25.

The downside scenario is supported by the formation of a Head and Shoulders pattern and a bearish signal from the Stochastic Oscillator, where the %K and %D lines have crossed. A breakout through the neckline of the Head and Shoulders pattern, with the price consolidating below 154.45, will confirm a further price decline to the target of 152.55.

The bearish scenario will be invalidated if the price secures above 156.65, indicating a breakout above the upper boundary of the descending channel and further upward movement towards 157.80.

Summary

The USDJPY rate is rising, driven by a rebound from the key support level. However, pressure due to hawkish signals from the Bank of Japan limits the potential for growth in the currency pair.

The USDJPY technical analysis suggests a potential test of the 156.50 level, followed by a fall to 154.25. A breakout through the neckline of the Head and Shoulders pattern will confirm a further decline to 152.55. However, breaking above the 156.65 resistance level may signal a reversal and further growth to 157.80.