USD/JPY Price Forecast: Ascending channel resistance might cap attempted recovery

The USD/JPY pair witnessed some intraday sellers on Friday, albeit manages to rebound swiftly from the 141.75 area and climbs to a fresh daily peak during the early part of the European session on Friday. The Japanese Yen (JPY) edged higher after the Bank of Japan (BoJ), as was widely anticipated, decided to leave its key short-term interest rate unchanged at 0.25% by a unanimous vote and stayed upbeat on the economy. In fact, the central bank raised its assessment of consumer spending and reiterated that it expects price growth to be in line with the goal during the latter half of the projection period. This comes on top of data showing that Japan's core inflation rose for the fourth consecutive month and backs the case for further BoJ policy tightening. 

The Statistics Bureau of Japan reported earlier today that the core Consumer Price Index (CPI), which excludes volatile fresh food prices, edged higher to the 2.8% YoY rate, or a 10-month high in August, from 2.7% in the previous month. Adding to this, the headline CPI rose from 2.8% in July to 3% during the reported month, also hitting a 10-month high. Furthermore, the core-core CPI, which strips out both fresh food and energy, climbed to 2.0% from 1.9%. The data pointed to broader inflationary pressures in Japan and reinforced bets that the BoJ will raise rates again in 2024. This marks a big divergence in comparison to the Federal Reserve's (Fed) relatively dovish outlook and attracts some intraday sellers around the USD/JPY pair on Friday.

The US central bank kick started its policy easing cycle on Wednesday and announced an oversized 50 basis points interest rate cut. Furthermore, policymakers forecast rates falling by another half of a percentage point by the end of this year. Meanwhile, the markets are pricing in over a 40% chance of another jumbo Fed rate cut move in November, which keeps the US Treasury bond yields and the US Dollar (USD) depressed. The USD/JPY pair, however, stages a goodish intraday recovery in reaction to BoJ governor Kazuo Ueda's not-so-hawkish remarks, saying that the uncertainties surrounding Japan's economy and consumer prices remain high. Any meaningful upside, however, still seems elusive, warranting caution for aggressive bullish traders. 

Technical Outlook

From a technical perspective, the recent downfall along a downward-sloping channel witnessed over the past month or so points to a well-established short-term downtrend. Moreover, oscillators on the daily chart – though have been recovering a bit – are still holding in negative territory and suggest that the path of least resistance for the USD/JPY pair is to the downside. Hence, any subsequent move up might continue to confront stiff resistance near the 144.00 mark. This is closely followed by the top boundary of the trend channel, around the 144.25 region, which if cleared decisively might negate the bearish outlook and prompt an aggressive short-covering move. Spot prices might then aim towards reclaiming the 145.00 psychological mark. 

On the flip side, the 142.60 area now seems to protect the immediate downside ahead of the 142.00 round figure and the daily swing low, around the 141.75 region. Some follow-through selling has the potential to drag the USD/JPY pair towards the 141.00 mark en route to the 140.55-140.50 support and the 140.00 psychological mark. The downward trajectory could extend further towards challenging the YTD low, around the 139.60-139.55 zone, which now coincides with the trend-channel support and should act as a key pivotal point. A convincing break below will be seen as a fresh trigger for bearish traders and pave the way for deeper losses.

USD/JPY 4-hour chart