USD/JPY Weekly Forecast: Markets Peel Back Hopes for BoJ Policy Change

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USD/JPY Weekly Forecast: Markets Peel Back Hopes for BoJ Policy Change

Investors are adjusting their expectations for a possible policy change from the Bank of Japan (BoJ) this week, as the recent surge in COVID-19 cases dampens hopes for a possible shift in monetary stance. The USD/JPY pair is facing downward pressure due to the market’s changing sentiment.

Rising COVID-19 Cases Prompt Concerns

With COVID-19 cases on a relentless rise worldwide, Japan is no exception. The spread of the Delta variant has prompted the Japanese government to declare a state of emergency in several regions, including Tokyo. This alarming development has cast doubts on the country’s economic recovery and puts pressure on the BoJ to maintain its current accommodative policy stance.

BoJ’s Monetary Policy Under Scrutiny

Amidst the uncertainty, investors were closely watching the BoJ’s policy meeting this week for any signs of change. However, as hopes for a policy shift fade, the USD/JPY pair is bearing the brunt of investors’ disappointment. There is a growing realization that the central bank may decide to maintain its current monetary stimulus measures to support the economic recovery.

Yen Strengthens as Dollar Weakens

The renewed caution amongst investors has led to a weaker dollar and a stronger yen. The USD/JPY pair has been trending downwards, with the yen gaining ground against its American counterpart. This shift in sentiment is also reflected in the broader financial markets, with safe-haven assets finding renewed appeal.

Market Volatility and US Economic Indicators

Apart from the BoJ’s policy, investors are keeping an eye on key economic indicators from the United States. Recent data shows a mixed picture of the US economy, with concerns over the impact of the Delta variant and supply chain disruptions. The volatility surrounding these indicators is also affecting the USD/JPY pair.

Technical Analysis Points to Downside Pressure

From a technical standpoint, the USD/JPY pair faces increased downward pressure. Key support levels have been breached, and the pair is now trading below its moving averages. Analysts believe that barring any unexpected positive developments, the path of least resistance for the pair remains downwards.

Conclusion

While hopes were high for a possible shift in BoJ’s monetary policy, the surge in COVID-19 cases has dashed these expectations for now. As the yen strengthens against the dollar and market sentiment turns cautious, the USD/JPY pair is likely to face further downside pressure. With economic indicators and technical analysis pointing to a continued bearish outlook, investors will closely monitor any new developments that could shift the trajectory of this pair in the coming weeks.

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