USD/JPY Price Forecast: Breakout through 50-day SMA favors bulls amid BoJ rate hike uncertainty

The USD/JPY pair scales higher for the third straight day – also marking the fourth day of a positive move in the previous five – and climbs to a one-month peak, around the 147.25 region on Thursday. The Japanese Yen (JPY) is undermined by the new Prime Minister Shigeru Ishiba's blunt comments on monetary policy, saying that Japan is not in an environment for an additional rate increase. Furthermore, Japan's newly appointed economy minister, Ryosei Akazawa, expects the Bank of Japan (BoJ) to make careful economic assessments when raising interest rates again. Adding to this, BoJ board member Asahi Noguchi stated that the central bank must patiently maintain loose monetary conditions and will make gradual adjustments while carefully assessing whether inflation sustainably reaches the 2% target. This, along with political uncertainty ahead of a snap election on October 27, exerts additional downward pressure on the JPY and contributes to the bid tone surrounding the currency pair amid sustained US Dollar (USD) buying interest. 

Investors have been paring their bets for a more aggressive policy easing by the Federal Reserve (Fed) amid the incoming upbeat US macro data, which pointed to a still resilient US labor market. The Automatic Data Processing (ADP) reported on Wednesday that private-sector employers added 143K jobs in September against expectations for a rise of 120K and the previous month's upwardly revised reading of 103K. Against the backdrop of Tuesday's unexpected rise in the number of available jobs in August, the data forced investors to reassess the likelihood of another 50-basis points rate cut at the November FOMC meeting and lifted the USD to a three-week high. Meanwhile, an Israeli strike on central Beirut, Lebanon, early this Thursday comes after Iran fired more than 180 ballistic missiles at Israel on Tuesday. This raises the risk of a full-out war in the Middle East, which helps limit the JPY losses and caps the USD/JPY pair, warranting some caution before placing aggressive bullish bets and positioning for a further near-term appreciating move. 

Market participants now look forward to the US economic docket – featuring the release of the usual Weekly Initial Jobless Claims and the ISM Services PMI. Apart from this, speeches by influential FOMC members will drive the USD demand and produce short-term trading opportunities around the USD/JPY later during the early North American session. The focus, however, will remain glued to the closely-watched US monthly employment details – popularly known as the Nonfarm Payrolls (NFP) report on Friday. Nevertheless, the fundamental backdrop seems tilted in favor of bulls and suggests that the path of least resistance for spot prices is to the upside.

Technical Outlook

From a technical perspective, the overnight sustained strength and close above the 50-day Simple Moving Average (SMA), for the first time since mid-July, could be seen as a fresh trigger for bulls. Moreover, oscillators on the daily chart have just started gaining positive traction and validate the near-term positive outlook for the USD/JPY pair. Hence, any further pullback might be seen as a buying opportunity near the 146.00 round figure, which should help limit the downside near the 50-day SMA resistance breakpoint, currently near the 145.40-145.35 region. This is followed by the 145.00 psychological mark, which if broken decisively will suggest that the recent goodish recovery from a 19-month low touched in September has run its course and shift the bias in favor of bearish traders. 

On the flip side, the 147.00 mark, followed by the 147.25 area, or the one-month peak, now seems to act as an immediate hurdle. The subsequent move up could lift the USD/JPY pair to the 148.00 round figure. The momentum could extend further toward the 148.55-148.60 region en route to the 149.00 mark and the August monthly swing high, around the 149.40 zone. Some follow-through buying will set the stage for a move towards reclaiming the 150.00 psychological mark.

USD/JPY daily chart