FX.co ★ USD/JPY: ready to test a multi-year high

For the seventh consecutive day, the USD/JPY pair continues its recent upward trajectory, jumping to a four-month peak, surpassing the previous month. Despite the interest rate hike for the first time since 2007, the Bank of Japan struck a dovish tone at the end of its March meeting on Tuesday.

The central bank decided to move away from negative interest rates and abandoned its complex yield curve control policy, but reassured that financial conditions would remain favorable. However, it did not articulate plans regarding future steps and the pace of monetary policy normalization. Such uncertainty undermines the yen as a safe-haven currency and acts as a tailwind for the currency pair.

On the other hand, the U.S. dollar remains near a two-week high reached on Tuesday and receives support from expectations that the Fed, amid stable inflation, will maintain high interest rates for a longer period.

Moreover, the U.S. central bank is now expected to lower its forecast for the number of interest rate cuts in 2024 from three, as previously thought, to two. Accordingly, this supports higher yields on U.S. Treasury bonds, thereby helping the USD/JPY pair to rise.

Today, attention should be paid to the outcome of the long-awaited two-day FOMC meeting and updated economic forecasts, including the "dot plot," which will give the dollar a new directional impulse. However, it is also worth noting that Japanese authorities may intervene in the markets to stop further weakening of the yen. Such an event will restrain further growth of the USD/JPY pair.

Nevertheless, the aforementioned fundamental background leans in favor of bulls and suggests that the path of least resistance for spot prices lies to the upside. This means that any decline is corrective and, remaining limited, will be bought up.

From a technical standpoint, the recent confident rebound from the 200-day simple moving average (SMA), and the sustained breakthrough of the 151.00 mark can be seen as a new stimulus for bulls. Additionally, oscillators on the daily chart are gaining positive momentum and are naturally far from overbought territory, confirming a short-term constructive situation for the USD/JPY pair.

Accordingly, there is a high probability that the pair is able to reach a multi-year peak, which was indicated in October 2022. Sustainable growth beyond the last one will lay the foundation for the continuation of the long-term upward trend observed since January 2023.

On the flip side, a corrective decline may attract new buyers near the strong horizontal level of 150.80. Failure to defend this level will trigger technical selling and bring the USD/JPY pair back to the psychological level of 150.00. The next significant support is around 149.50, and a decisive breakthrough could shift the bias in favor of bears, thereby paving the way for a significant decline in the exchange rate.