USD/JPY Analysis: BOJ Policy Could Weaken Yen in the Future – 11 November 2024

-- A shift in the Bank of Japan's policy has tempered market expectations for further monetary tightening.
-- In addition to Trump's victory in the US presidential election and expectations of a return to market talk due to customs wars and tariffs and confronting countries that devalue their currencies.
-- All of these factors contributed to further strengthening the upward trend of the USD/JPY currency pair, with last week's gains reaching the resistance level of 154.70, the highest for the currency pair in more than three months, and closing the exciting week's trading stable around the 152.60 level.
-- This performance will be monitored by US inflation figures this week, in addition to a round of statements by US Federal Reserve officials led by Jerome Powell.

How has Trump's victory affected the markets and investor sentiment?

Trump’s return to the White House has upended expectations for the U.S. Treasury market, where October’s losses have already erased much of this year’s 2024 gains. Less than two months after the Federal Reserve began cutting U.S. interest rates from their highest levels in more than two decades, the prospect of Trump cutting taxes and imposing big tariffs threatens to reignite inflation by raising import costs and pumping stimulus into an already strong economy.

His fiscal plans — unless offset by massive spending cuts — would also send the U.S. budget deficit soaring. That in turn has renewed doubts about whether bondholders will start demanding higher yields in exchange for absorbing the ever-increasing supply of new Treasuries. Analysts expect the 10-year Treasury yield to rise to its peak of 5% in late 2023, about 70 basis points above Friday’s level.

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Overall, there is still a great deal of uncertainty about the exact policies that Trump will enact, and some of the potential impact has already been priced in, as speculators began betting on his victory long before the vote. While yields on 10- and 30-year Treasury bonds rose last week to their highest levels in months, they fell again over the next two days, ending the week at a lower level than they started. But the prospect that Trump's policies will stimulate growth has led traders to scale back their expectations of how deeply the Federal Reserve will cut US interest rates next year, dashing hopes for bonds to rise with strong policy easing.

Economists at Goldman Sachs, Barclays, and JPMorgan have adjusted their forecasts for the Federal Reserve to show fewer cuts. Swap traders are pricing in policymakers cutting the US interest rate to 4% by mid-2025, which is a full percentage point higher than their expectations in September. And it is now in the range of 4.5% to 4.75%. Accordingly, economic data this week, especially the latest reading of US consumer and producer prices, could renew volatility. Federal Reserve Chairman Jerome Powell, New York Fed President John Williams, and Fed Governor Christopher Waller will also speak, offering potentially new insights into their outlook.

USD/JPY Technical Analysis and Expectations Today:

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USD/JPY continues to trade slightly below its 100-hour moving average. Last Friday’s rebound prevented the pair from falling to oversold levels on the 14-hour RSI. Accordingly, based on the near-term performance and as seen on the hourly chart, USD/JPY is trading within a descending channel formation. However, the 14-hour RSI has recently rebounded to avoid falling into oversold levels. Therefore, bulls will target extended rebounds around 153.20 or higher at the 154.00 resistance. On the other hand, bears will look to move towards extended declines around 152.11 or lower at the 151.00 support.

In the long term, based on the daily chart, USD/JPY is trading in an ascending channel formation. Also, the 14-day RSI supports a bullish bias after the rally near overbought levels. Therefore, bulls will look to move the current rally towards 155.30 or higher to the 157.00 resistance. On the other hand, bears will look to pounce on the declines around 150.00 or lower to the 147.87 support.

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Original Source DailyForex.com provides daily fundamental and technical analysis and signals for those looking to trade based on trends in the currency markets.