USD/JPY. Yen weakens

The USD/JPY pair hit a multi-month price high on Friday, approaching the 142 level. The last time the pair was at this level was in November 2022. Recall that the yen actively lost its positions from August to October 2022 and eventually reached the 151.96 level, causing concern for the Japanese authorities. After two currency interventions, the Japanese government managed to reverse the USD/JPY trend, especially as the dollar began to weaken towards the end of the year.

And now, the pair is showing a strong uptrend again. It's no joke: since the end of March, the yen has lost over a thousand pips against the greenback! And this is happening despite the fact that the USD is not feeling as confident this year as it did in the past. Nevertheless, the pair is consistently growing (albeit with significant pullbacks), developing an uptrend. On Friday, USD/JPY buyers made another price surge in response to the outcome of the Bank of Japan's June meeting. Not only did the central bank keep its monetary policy unchanged, it also issued a relatively soft accompanying statement that did not contain any indications regarding the Bank's exit from accommodative policies.

First and foremost, it is necessary to recall that back in April, the BOJ announced its intention to review its ultra-loose policy. However, the statement was largely declarative, as the expected timeline for the review turned out to be much longer than previously anticipated, ranging from 12 to 18 months.

The April meeting marked the first meeting under the leadership of Kazuo Ueda. Therefore, market participants were expecting more "revolutionary" signals, especially since he voiced certain hints after being approved for the position by the Japanese parliament.

However, at the end of the June meeting it became clear that all the changes will happen very smoothly and gradually: it seems that the Japanese central bank will utilize the entire declared 18-month duration for policy review, and the first changes of a verbal nature (i.e., changes in the central bank's stance) will likely appear closer to September or late autumn.

The tone of the accompanying statement of the June meeting was optimistic. The central bank said that the Japanese economy is gradually picking up momentum and will continue its moderate recovery, while the core consumer inflation will slow its pace of growth by the middle of the current fiscal year (which started in April).

It is worth noting that according to the latest data, inflation in Japan unexpectedly accelerated to 3.5% (year-on-year), due to a sharp rise in food prices. The report's breakdown shows that food prices in the country increased by 8.4% (the highest growth rate since August 1976). The consumer price index, excluding fresh food (a key indicator tracked by the BOJ), increased by 3.4% year-on-year.

Considering this trend, some experts expected Ueda to adopt a more stringent stance in the context of assessing further prospects for monetary policy calibration. However, Ueda made relatively soft comments, stating that the central bank will make decisions regarding policy changes only after carefully studying the potential consequences of the measures taken.

Ueda also commented on the latest inflation report, stating that the rise in the overall consumer price index in Japan to 3.5% is due to "external factors and cost increases" and, therefore, cannot be controlled by monetary policy.

Such dovish outcomes disappointed USD/JPY sellers, after which the pair surged again, reaching a multi-month high and approaching the 142 level.

Amid the BOJ's soft formulations, the Federal Reserve still appears to be a hawk, despite announcing a pause in rate hikes in June. The US central bank has left the door open for further tightening of monetary policy in the future. Moreover, according to the CME FedWatch Tool, the market is almost certain that the Fed will exercise this "option" as early as next month. Currently, the probability of a 25 basis-point rate hike following the July meeting is nearly 75%.

Thus, the dovish outcomes of the Fed's June meeting did not deter buyers of the USD/JPY pair. The BOJ continues to hold the lead in this regard, keeping rates in negative territory and voicing soft formulations. At the same time, the Japanese central bank made it clear on Friday that the declared calibration of the monetary policy framework is not a matter of the near future.

From a technical standpoint, the situation is as follows. On the daily chart, the pair is on the upper line of the Bollinger Bands indicator and above all lines of the Ichimoku indicator, which has formed a strong bullish Parade of Lines signal. This indicates a clear advantage for the upward movement. The next target for this is at the upper boundary of the Kumo cloud on the weekly chart, around the 142.50 level. The pair still has the potential to rally, so it is advisable to use downward pullbacks as an opportunity to open long positions.