USD/JPY Price Forecast: Bullish breakout comes into play amid BoJ uncertainty

The USD/JPY pair catches fresh bids following the previous day's two-way price moves and climbs to the 154.75-154.80 region, or a fresh high since February 12, during the first half of trading action on Wednesday. The Japanese Yen (JPY) weakens across the board in reaction to comments from Japan's Prime Minister Sanae Takaichi, which signaled her administration's preference for interest rates to stay low. Adding to this, the upbeat market mood continues to undermine the JPY's safe-haven status and is seen as a key factor acting as a tailwind for the currency pair.

Speaking in parliament on Wednesday, Takaichi said that she hopes the Bank of Japan (BoJ) achieves inflation driven by wages rather than primarily through rising food costs, as Japan still faces the risk of returning to deflation. Moreover, Takuji Aida – an economist chosen to join Takaichi's panel to debate growth strategy – told the Nikkei newspaper earlier this week that the BoJ should avoid raising interest rates in December. Aida added that the central bank should wait at least until January next year as Japan's economy likely contracted in the third quarter.

Furthermore, Takaichi said that the government plans to compile a package of measures to cushion the blow from rising living costs and lift investment in growth areas. This comes amid the BoJ's reluctance to commit to further interest rate hikes, which adds to uncertainty over the central bank's policy tightening path. Apart from this, the optimism over a potential deal to end the US government shutdown, along with Japan's diplomatic spat with China over Takaichi's Taiwan remarks, further exerts pressure on the JPY and contributes to the UISD/JPY pair's move higher.

The JPY, meanwhile, fail to gain any respite following some verbal intervention efforts from Japan's Finance Minister Satsuki Katayama, saying that she will be closely watching FX moves with a high sense of urgency. The US Dollar (USD), on the other hand, struggles to attract any meaningful buyers amid concerns about weakening economic momentum and dovish Federal Reserve (Fed) expectations. This, however, does little to dent the bullish sentiment surrounding the USD/JPY pair and backs the case for an extension of the recent well-established upward trajectory.

Traders now look forward to speeches from a slew of influential FOMC members for more cues about the Fed's future rate-cut path. This, in turn, will play a key role in driving the USD demand later during the North American session and provide some impetus to the USD/JPY pair. Nevertheless, the aforementioned fundamental backdrop and a constructive technical setup suggest that the path of least resistance for spot prices remains to the upside. Hence, any corrective pullback could be seen as a buying opportunity and is more likely to remain cushioned.

USD/JPY 4-hour chart

Technical Outlook

An intraday breakout through the 154.45-154.50 supply zone could be seen as a fresh trigger for the USD/JPY bulls. Moreover, oscillators on the daily chart are holding comfortably in positive territory and back the case for a further appreciating move towards the 155.00 psychological mark. The momentum could extend further towards the 155.60-155.65 intermediate hurdle before spot prices eventually climbs to the 156.00 round figure.

On the flip side, any corrective pullback below the 154.50-154.45 resistance breakpoint could be seen as a buying opportunity near the 154.00 mark. A convincing break below, however, might prompt some technical selling and drag the USD/JPY pair to the 153.60-153.50 intermediate support en route to the 153.00 round figure. The latter should act as a pivotal point, below which spot prices could weaken further towards the 152.15-152.10 region.