USD JPY ascent at resistance ahead of Fed minutes BoJ statement

USD/JPY has been rising steeply for the past month since mid-October, buoyed by a consistently strong dollar and progressively weaker yen.

The dollar has been lifted up by recent US economic data and inflation readings that have increasingly supported the case for an already-hawkish US Federal Reserve to potentially begin raising interest rates in December.

In contrast, the yen has been dragged down by a relatively dovish Bank of Japan (BoJ) that could be poised to expand its well-established stimulus measures in the foreseeable future due to weak economic growth. Monday’s quarterly GDP report out of Japan showed a worse-than-expected GDP contraction of 0.2% against prior expectations of a 0.1% contraction. This places Japan technically within recession territory and helps support the case for further potential BoJ easing down the road.

On top of this, a relative lack of significant volatility in the global equity markets has recently led investors to avoid the yen in its traditional role as a risk averse, safe haven currency.

This combination of factors has helped to prompt a month-long rise for USD/JPY. Immediately upcoming data could help to further propel the currency pair. Wednesday’s FOMC meeting minutes from last month’s Fed meeting should provide some more context around the decision to keep rates on hold in October and provide some further clues as to what may or may not occur in December with regard to a rate hike. Thursday’s BoJ monetary policy statement should additionally provide some more clues as to Japan’s potential monetary direction.

From a technical perspective, USD/JPY has bumped up against major resistance around the 123.60 level as of this writing. This level represents the intermediate three-week high from early last week. With any sustained breakout above this level on the noted central bank news releases, USD/JPY could be poised for a run-up towards further key resistance around the 125.00 target level, last hit in mid-August. Major downside support on any pullback currently continues to reside around the important 122.00 support/resistance level.