Fundamental analysis of USD/JPY

The USD/JPY pair strengthened substantially on Thursday following signals from the Federal Reserve (Fed) of possible future rate hikes. Although interest rates have remained unchanged, there is a high probability of a 50 basis point increase by the end of the year. While the Bank of Japan (BOJ) seeks to maintain its ultra-soft policy and adjustments to control government bond yields. This break in Fed policy is seen as a hawkish signal, indicating that the U.S. dollar may be supported in the medium term.

The Federal Reserve announced that it will be taking a deeper look at historical data and the effect that policies are having on the economy. Market assessments suggest a 60% chance of a rate hike at the July meeting.

In addition, the USD/JPY pair is supported by strong U.S. Treasury bond yields. The growing difference between U.S. and Japanese government bonds makes the U.S. dollar more attractive. Despite earnings swings, the Fed is likely to raise twice more over the course of the year after a pause.

In the medium term, the Bank of Japan will maintain its ultra-soft monetary policy and its forecast of a moderate economic recovery. Strong corporate data and consumer spending will offset the impact of slowing foreign demand. The central bank may also indicate that inflation is above its forecasts, potentially leading to higher price forecasts at the time of the quarterly reports in July. If the yen weakens to the 145 per U.S. dollar level, most economists polled by Reuters believe the Japanese government and BOJ will take action to prevent a further drop. Market participants are closely watching both sides' reactions to currency fluctuations. This is especially important in light of the pair's recent near six-month low.
As for the short-term outlook, the general mood looks bullish. Signals from the Federal Reserve about possible rate hikes, combined with support from high Treasury bond yields, suggest favorable prospects for the USD/JPY pair in the near term. However, it is important to consider current market dynamics and geopolitical factors that could affect the currency pair's performance

Trading Scenarios:

Support levels: 136.060, 137.480, 138.595, 139.975.
Resistance levels: 141.165, 142.500, 143.250. 

Main scenario: Buy
Given the current bullish trend and signals from the Federal Reserve about possible rate hikes, the main scenario involves further strengthening of the dollar against the yen. If the USD/JPY breaks through resistance at 141.165, the next target level is 142.500. In this case, it is recommended to set a take profit level at 142.500 and a stop loss at the support level of 139.975 to minimize risks.

Alternative scenario: Sell
In case of changes in the market dynamics or influence of unforeseen geopolitical events, the pair USD/JPY may start to correct downward. If the pair breaks through the support level of 139.975, the next target level will be 138.595. In this case, it is advisable to set a take profit level at 138.595 and stop loss at resistance level of 141.165.