• The USD/JPY outlook shows fluctuations in the yen after the Bank of Japan policy meeting. 
• The Bank of Japan was more upbeat about the outlook for Japan’s economy than expected.
• US data revealed strong private employment and GDP growth. 

The USD/JPY outlook turns slightly bearish after the Bank of Japan policy meeting that revealed a positive outlook for the economy and inflation. However, dollar strength continued after upbeat data in the previous session.

The Bank of Japan was more upbeat about the outlook for Japan’s economy than expected. The brighter outlook comes after the US-Japan trade deal. At the same time, the central bank upgraded its forecast for inflation. As a result, it raised expectations for rate hikes next year, boosting the yen.

“There is definitely a clear justification for them to hike rates,” said Khoon Goh, head of Asia research at ANZ.

“Now, the fact that Japan has finally reached a deal with the US does remove some element of that uncertainty for itself. So I think the question is whether the BOJ is now prepared to hike in October.”

However, dollar strength from the previous session undid the yen’s gains. The greenback rallied after data revealed strong private employment and GDP growth. At the same time, the Fed kept rates unchanged as expected.
 

USD/JPY key events today

• US core PCE price index m/m
• US employment cost index q/q
• US unemployment claims
   

USD/JPY technical outlook: RSI divergence points to weaker bulls
 

(Click on image to enlarge)

USD/JPY 4-hour chart
 

On the technical side, the USD/JPY price has broken above the 149.01 key resistance. At the same time, it has swung higher above the 30-SMA, suggesting bulls are in the lead. Meanwhile, the RSI trades near the overbought region, supporting strong bullish momentum. 

Bulls have maintained a strong lead since the price reversed at the 146.00 support. Moreover, the break above the 149.01 key resistance confirms a continuation of the previous uptrend. However, the RSI shows a different story. While the price has made a higher high, the RSI has made a lower one, indicating a bearish divergence. This is a sign that bulls are not as strong as they were when they first challenged these levels. 

Therefore, bulls might find it challenging to make new highs above the 149.01 key level. Moreover, bears might emerge stronger for a deep pullback or a reversal.

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