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• The USD/JPY exchange rate has been in a strong uptrend in the past few months.
• The Bank of Japan left interest rates unchanged and tweaked its yield curve control.
• Economists expect the Federal Reserve will leave rates unchanged in December.

The USD/JPY exchange rate sits at an important resistance level as investors assess the next actions by the Federal Reserve and the Bank of Japan (BoJ). The pair was trading at 150.50 on Tuesday, a few points below the year-to-date high of 151.96. It has surged by over 18% from the lowest point in January.
 

Fed and BoJ policies

The USD/JPY pair has been in a strong uptrend in the past few months. This rally is mostly because of the actions by the Bank of Japan. In its recent decision, the bank decided to leave interest rates unchanged at -0.10%. 

The BoJ also decided to tweak its yield curve control (YCC) by allowing the government bonds to move to 1%. That yield was trading at 0.877% on Tuesday afternoon lower than this month’s 0.95%. 

The Bank of Japan is going to destroy everything.

Watch the Yen.

— Michael A. Gayed, CFA (@leadlagreport) October 31, 2023

The USD/JPY exchange rate reacted to the latest economic data from Japan. According to the statistics agency, average cash earnings rose by 1.2% in September from the previous month’s 0.9%. 

Additional data revealed that Japan’s household spending rose by 0.3%, better than the median estimate of -0.4%. Spending had risen by 3.9% in the previous month. Further, the country’s household spending dropped by 2.8% from the same month earlier.

The other important USD/JPY news was last week’s Federal Reserve decision. In it, the bank decided to leave interest rates unchanged between 5.25% and 5.50%. It also left the door open for another rate hike.

However, most analysts believe that the bank will maintain rates in this range for a while. Besides, the latest Non-Farm Payrolls (NFP) data showed that the economy added over 150k in October while the unemployment rate rose to 3.9%.
 

USD/JPY technical analysis

(Click on image to enlarge)

USD/JPY chart by TradingView

The weekly chart shows that the USD/JPY pair has been in a strong bullish trend in the past few months. It has recently retested the important resistance point at 151.96. The pair has formed what looks like a double-top pattern whose neckline is at 127.41.

At the same time, the Relative Strength Index (RSI) and the Stochastic Oscillator (SO) have moved to the overbought level. Therefore, the outlook for the pair is neutral for now. A move above the year-to-date high of 151.96 will invalidate the bullish view, which will push it much higher.

The alternative is where the double-top thesis is validated, which will push the pair much lower to the next support at 140.

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