The Japanese yen is the strongest major currency today, supported by better-than-expected Tankan survey data and hawkish commentary from the Bank of Japan (BoJ). The BoJ’s positive assessment of wage growth this morning has further reinforced expectations of a rate hike.

Markets currently price an 83% probability of a 25 basis point rate increase in the upcoming BoJ monetary policy decision on Friday. However, most traders do not expect the central bank to signal tighter policy beyond this move, with markets anticipating a total of 67 basis points in tightening by the end of 2024. As a result, the USD/JPY exchange rate will likely be more influenced by US economic data this week, unless the BoJ surprises with a more aggressive stance.

Turning to the US dollar, it has weakened broadly since last week’s Federal Open Market Committee (FOMC) meeting. The Fed met expectations by cutting rates by 25 basis points and raised the bar for future rate cuts. However, Fed Chair Jerome Powell’s press conference was perceived as comparatively dovish. Rather than adopting a neutral tone and emphasising data dependency, he downplayed inflation risks and highlighted labour market softness, implying greater tolerance for higher inflation over a weakening labour market.

The spotlight this week falls on key US economic releases. The non-farm payrolls (NFP) report is due tomorrow, followed by the Consumer Price Index (CPI) on Thursday. These reports will mark the final major data points before the year-end holiday season. Currently, markets price 57 basis points of Fed easing by the end of 2026.

Strong US data, particularly on the labour front, could trigger a hawkish market repricing, bolstering the US dollar. Conversely, weaker-than-expected figures would likely weigh on the greenback, accelerating expectations for rate cuts.

USD/JPY Technical Outlook

On the daily chart, a critical support zone lies near 153.50. Should the pair fall to this level, buyers may step in with clearly defined risk below the zone, aiming to push prices towards the 158.87 resistance area. Sellers will look for a break below 153.50 to increase bearish momentum towards the major trendline.

The 4-hour chart has shown choppy price action recently, providing no clear levels to reference. The pair is currently trading around last Thursday’s low of 155.00. A break below this level could pave the way for a drop to the 153.50 support.

On the 1-hour chart, a few minor support and resistance levels are evident. Buyers have entered near 155.00, targeting a move back up to 155.50. If the price retraces to 155.50, sellers may position for a decline to new lows, favouring a better risk-to-reward setup with stops above that resistance. Conversely, buyers will seek a break above 155.50 to increase bullish pressure towards the next resistance at 156.15. The average daily range for today is marked by red lines.

Upcoming Market Events

Traders should focus on tomorrow’s US NFP report and Thursday’s CPI release as key drivers of USD and risk sentiment. The week concludes on Friday with the BoJ’s monetary policy decision, which could further affect the JPY.

Original Source: Giuseppe Dellamotta of investinglive.com