USD/JPY Price Forecast: Post-BoJ breakout through 153.25-153.30 favors bullish traders

The USD/JPY pair reverses an intraday slide to the 151.15-151.10 area after the Bank of Japan (BoJ) announced its policy decision and rallies to the highest level since February during the first half of the European session on Thursday. As was widely expected, the BoJ held interest rates steady despite two dissenting votes, with board members Naoki Tamura and Hajime Takata pushing for a hike to 0.75%. Moreover, traders remain uncertain about the timing of a potential move in December amid speculations that Japan's new Prime Minister Sanae Takaichi will pursue aggressive fiscal spending plans and resist policy tightening. This, along with in turn, weighed heavily on the Japanese Yen (JPY) and triggered the initial leg of the pair's move higher.

In the post-meeting press conference, BoJ Governor reiterated that the central bank will continue to raise the policy rate if the economy, prices move in line with the forecast. Ueda, however, added that there are no preset ideas about the timing of the next rate hike, which, in turn, does little to ease the selling pressure surrounding the JPY. The US Dollar (USD), on the other hand, drifts lower and move away from an over two-week high touched on Wednesday, though it does little to stall the USD/JPY pair's intraday move higher. Investors now seem worried about economic risks stemming from a prolonged US government shutdown, which offsets the US Federal Reserve's (Fed) hawkish tilt and exerts some downward pressure on the buck.

The US central bank lowered its benchmark overnight borrowing rate to a range of 3.75%-4% and said it would stop reducing the size of its balance sheet as soon as December, marking the end of its quantitative tightening program. In the post-meeting press conference, Fed Chair Jerome Powell pushed back against market expectations for more easing and said that a further reduction in the policy rate at the December meeting is not a foregone conclusion. This, in turn, helps limit deeper USD losses. Moreover, receding fears of an all-out trade war between the US and China – the world's two largest economies – could undermine the JPY's relative safe-haven status and support the case for a further near-term appreciating move for the USD/JPY pair.

A high stakes meeting between US President Donald Trump and his Chinese counterpart Xi Jinping ended on a positive note, with the US agreeing to cut down tariffs against Chinese goods, and China agreeing not to impose new export restrictions on rare earth minerals. Moreover, the Chinese leader said both sides had reached a consensus to resolve major trade issues, while Trump said that the US can sign a trade deal with China pretty soon. The optimism could further boost investors' confidence, which, in turn, could add to the JPY selling and validate the near-term positive outlook for the USD/JPY pair. Traders now look to speeches from FOMC members for cues about the future rate-cut path and short-term impetus later during the North American session.

USD/JPY daily chart

Technical Outlook

An intraday breakout through the 153.25-153.30 region, or the previous monthly swing high, could be seen as a key trigger for bullish traders. Moreover, oscillators on the daily chart are holding comfortably in positive territory and are still away from being in the overbought zone. Hence, some follow-through strength towards the 154.00 mark, en route to mid-154.00s, the 154.75-154.80 region, and the 155.00 psychological mark, looks a distinct possibility.

On the flip side, weakness below the 153.30-153.25 resistance-turned-support could be seen as a buying opportunity near the 153.00 mark. A convincing break below the latter, however, might expose the Asian session low, around the 152.15 region. This is closely followed by the 152.00 mark, below which the USD/JPY pair could slide further towards the 151.55-151.50 area before eventually dropping to the 151.10-151.00 key support.