The USD/JPY forecast shows increased bearish sentiment as the yen surged after the Bank of Japan raised interest rates. At the same time, Japan’s central bank announced plans to reduce its massive economic stimulus. Meanwhile, investors were preparing for the Fed policy meeting.

The yen is heading for a monthly gain of 5%. The recent rally came after the BoJ hiked rates on Wednesday, tightening its monetary policy. Japan’s rates are now at 0.25%, meaning the policy divergence between the BoJ and the Fed is shrinking. 

The yen’s rally in July was caused by several factors. First, the Bank of Japan intervened in the markets by buying the yen and selling the dollar, resulting in a brief increase in demand for the yen.

Second, there was more speculation about a possible rate hike at the end of the month. Consequently, investors started pricing in higher rates even before the policy meeting. As it turns out, the BoJ did not disappoint. 

Third, markets hoped the BoJ would announce plans to reduce its bond purchases. However, the actual figures came in lower than expected. The central bank expects to halve its bond purchases by the first quarter of 2026.

Elsewhere, there was caution ahead of the Fed policy meeting. The US central bank will likely keep interest rates unchanged. However, traders hope policymakers will signal the first rate cut in September. 

USD/JPY key events today

• BOJ Press Conference
• US ADP non-farm employment change
• US Employment Cost Index q/q
• US pending home sales m/m
• FOMC policy meeting

USD/JPY technical forecast: Bears take charge after bearish engulfing candle

(Click on image to enlarge)

USD/JPY 4-hour chart

On the technical side, the USD/JPY price has suddenly shifted from bullish to bearish. Initially, bulls took charge by breaking above the 30-SMA. However, they failed to breach the 154.80 key level. Here, the price made a bearish engulfing candle, indicating a looming reversal. 

The price fell back below the 30-SMA, and the RSI entered the oversold region. After the reversal pattern, bears took over and broke below the 152.01 support level. As a result, the price has made a lower low. If this bearish trend continues, the price will soon take out the 150.02 level. 

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