USD/JPY forecast: triangle forms ahead of FOMC, BoJ rate decisions

The USD/JPY exchange rate will be in the spotlight this week as the Federal Reserve and the Bank of Japan (BoJ) publish their interest rate decisions. It was trading slightly below the important resistance level at 160 as traders wait for these events and as the Iran crisis continued.

BoJ interest rate decision

The USD to Japanese yen will be in focus this week as the BoJ releases the latest interest rate decision. Economists expect the bank to leave interest rates unchanged at 0.75% as it observes the impact of the ongoing war to the economy. 

A report released on Friday showed that Japan’s inflation continued rising in March as the war boosted energy prices. This rise will continue as there are signs that the blockade of the Strait of Hormuz will continue for a while.

The US has been open to talks with Iran, which the latter has resisted. Last week, the Iranians remained non-commital on talks even as President Donald Trump insisted that they would happen. At some point, he noted that JD Vance was on his way to Pakistan only for his motorcade to show up in the White House.

The same situation happened during the weekend. To save face, Trump shared that the team would not travel to Pakistan, citing the fact that Iranian leaders were divided. Iran has rejected these claims.

In addition to the headline decision, the BoJ will likely provide a guidance on what to expect in the upcoming meetings. For one, the IMF has called for the bank to hike interest rates, which analysts believe is possible. Officials will also highlight measures to boost the Japanese yen, which has crashed in the past few years.

Federal Reserve decision and key macro data

The next key catalyst for the USD/JPY will be the upcoming Federal Reserve decision on Wednesday. Like the BoJ, analysts expect the bank to leave interest rates unchanged between 3.50% and 3.75% in this meeting.

The bank, which has been under pressure to cut rates from Trump, sees no need to do so as inflation remains high. The most recent data showed that the headline consumer inflation jumped to 3.3% and the OECD expects it will rise to 4.3% this year.

Worse, there are signs that the US is moving towards a stagflation, a period characterized by high inflation and slow economic growth. For example, an economic report expected this week will show that the economy expanded by less than two percent in the first quarter.

USD/JPY technical analysis

USDJPY chart | Source: TradingView

The weekly chart shows that the USD to JPY pair has moved to the psychological level at 160. It has moved comfortably above the 50-week and 100-week moving averages, a sign that bulls are in control.

The pair has formed an ascending triangle pattern, which is made up of a horizontal support and a diagonal line. Therefore, the most likely scenario is where it rebounds, potentially to the key resistance level at 163.

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