The USD/JPY price analysis shows a strong uptrend as the yen continues its slide due to the interest rate differential between Japan and the US. At the same time, economic data from Japan shows a small chance that the Bank of Japan will hike rates at the next policy meeting.

The dollar continued its rally against the yen on Tuesday as the market focused on the wide interest rate gap between Japan and the US. Notably, data from Japan on Monday showed that the country downgraded its Q1 GDP figures, showing that the economy shrank more than reported. The economy contracted 2.9% annually, compared to the reported 1.8% decline.

These new figures complicate the outlook for rate hikes in Japan. A vulnerable economy could weaken further with high borrowing costs. However, if the Bank of Japan continues to delay rate hikes, the rate gap between Japan and the US will remain wide, hurting the yen.

At the same time, a rally in US Treasury yields weighed on the yen. Yields soared in the previous session, boosting the dollar as markets priced in the possibility of a Trump win. This came after last week’s debate, in which Trump came out stronger than Biden. A Trump government would likely lead to an increase in inflation, which would strengthen the dollar. 

Meanwhile, investors are awaiting Fed Chair Powell’s speech later today for clues on the rate cut outlook. A cautious tone could further boost the dollar.

USD/JPY key events today

• Fed Chair Powell’s speech
• US JOLTS job openings

USD/JPY technical price analysis: Bulls weaken as they approach the 162.01 level

(Click on image to enlarge)

USD/JPY 4-hour chart

On the technical side, USD/JPY is quickly approaching the 162.01 level. The price is in a steep bullish trend, well above the 30-SMA. At the same time, the RSI trades near the overbought region, supporting bullish momentum. 

However, it has made a lower high while the price has made a higher high. This indicates a bearish divergence due to fading bullish momentum. Therefore, there is a high chance that the price will soon reverse. If this happens, it might retest the 30-SMA or break below to the 160.00 support level.

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