US Dollar Forecast: USD/JPY Bounces Back Ahead of Monthly Low

US Dollar Outlook: USD/JPY

USD/JPY bounces back ahead of the monthly low (146.22) even though the Federal Reserve prepares to further unwind its restrictive policy, and the exchange rate may attempt to retrace the decline from the start of the month should it continue to close above the 50-Day SMA (146.87).

US Dollar Forecast: USD/JPY Bounces Back Ahead of Monthly Low

Keep in mind, the moving average is starting to reflect a positive slope as USD/JPY pushed above the April high (150.49) during the previous month, but speculation for a change in Fed policy may drag on the US Dollar as Chairman Jerome Powell warns that ‘the shifting balance of risks may warrant adjusting our policy stance.’

In turn, a growing number of Fed officials may show a greater willingness to pursue lower interest rates as higher tariffs seem to have a limited impact on inflation, and the Federal Open Market Committee (FOMC) may implement a series of rate cuts to keep the economy near full-employment.

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However, the Fed may proceed with caution as Chairman Powell acknowledges that the ‘neutral level may now be higher than during the 2010s,’ and the FOMC may tame expectations for a rate-cutting cycle as the central bank continues to combat inflation.

With that said, swings in the carry trade may continue to sway USD/JPY as the Fed insists that ‘monetary policy is not on a preset course,’ but the recent rebound in the exchange rate may turn out to be temporary if it fails to defend the advance from the monthly low (146.22).

USD/JPY Price Chart – Daily

Chart Prepared by David Song, Senior Strategist; USD/JPY on TradingView

USD/JPY may track the positive slope in the 50-Day SMA (146.87) amid the failed attempts to close below the moving average, with a move/close above 148.70 (38.2% Fibonacci retracement) bringing 150.30 (61.8% Fibonacci extension) on the radar.
A breach of the monthly high (150.92) may lead to a test of the March high (151.31), but lack of momentum to hold above the moving average may push USD/JPY toward the monthly low (146.22).
A move/close below 145.90 (50% Fibonacci extension) opens up the 144.40 (23.6% Fibonacci retracement) to 144.60 (50% Fibonacci extension) region, with the next area of interest coming in around the July low (142.68).

Additional Market Outlooks

Canadian Dollar Forecast: USD/CAD Tumbles as Fed Warns of Rate Cut

EUR/USD Under Pressure After Failing to Test Monthly High

Australian Dollar Forecast: AUD/USD Approaches Monthly Low

GBP/USD Recovery Curbs Threat of Head-and-Shoulders Formation

--- Written by David Song, Senior Strategist

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