• Last week, the yen gained over 2% against the US dollar.

• The BoJ might hike rates by 10bps.

• The Fed will likely keep rates unchanged.

The USD/JPY outlook shows a mild bullish move as the pair recovers ahead of monetary policy meetings in Japan and the US. Investors are eyeing a potential rate hike from the Bank of Japan on Wednesday. Meanwhile, expectations suggest the Fed will maintain its current rates.

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Last week, the yen gained over 2% against the US dollar amid increased expectations for a BoJ rate hike. Investors have gained confidence in a hike because of increased pressure to support the weak yen. As a result, there is a 63% chance that Japan’s central bank will announce a 10bps rate hike tomorrow. 

However, experts have warned that there is a risk the central bank might disappoint. The BoJ has surprised markets many times before. If there is no rate hike tomorrow, it might be a dark day for the yen. 

Meanwhile, traders also anticipate the BoJ’s announcement of plans to reduce its bond purchases. Such an outcome would show confidence that Japan’s economy is on steadier ground, which could propel the yen higher.

On the Fed’s side, investors will focus on economic projections and Powell’s message. At the last meeting, the Fed projected one rate cut in December, which led to a decline in September’s rate cut expectations. If policymakers maintain this outlook, rate-cut bets will fall again, boosting the dollar. However, market participants expect a more dovish outlook given the recent cooler inflation. Notably, policymakers could signal the first cut in September.

USD/JPY key events today

• US CB consumer confidence
• US JOLTS Job Openings

USD/JPY technical outlook: Morning Star pattern ignites buyers

On the technical side, the USD/JPY price has broken above the 30-SMA, indicating a shift in control from bears to bulls. The RSI also shows a shift in sentiment, having broken above 50. This new move comes after the downtrend paused at the 152.01 support level. 

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At this point, the price made a Morning Star candlestick pattern, signaling a looming bullish reversal. Since then, bulls have taken charge and broken above the 30-SMA. However, they face a solid barrier at the 154.80 key level. A break above would clear the path to the next resistance at 158.02.

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