• The Fed predicted fewer rate cuts in the coming year.

• Fed policymakers have assumed a less dovish stance due to the resilient US economy.

• The Bank of Japan gave little clues on future moves.

The USD/JPY outlook took a sharp bullish turn on Wednesday as the Fed forecasted fewer cuts in 2025, and the BoJ remained mum on the outlook for rate hikes. As a result, the dollar soared while the yen collapsed. 

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The Federal Reserve met on Wednesday and cut interest rates by 25 bps. However, it was a hawkish cut because policymakers predicted fewer rate cuts in the coming year. According to forecasts, the central bank might only cut by 50 bps in 2025. This was a 50-bps drop from September’s forecast. As a result, markets slashed bets for rate cuts, boosting the dollar. 

Although traders had expected a change in the outlook for monetary easing, the Fed’s cautious forecast came as a surprise. Policymakers have assumed a less dovish stance due to the resilient US economy. Moreover, Trump’s administration might come with more economic growth and a spike in inflation, which would require a more restrictive policy. 

On the other hand, the Bank of Japan kept rates unchanged on Thursday and gave little clues on future moves. Market participants had expected some hints about a rate hike. However, Governor Ueda said the central bank needed time to assess incoming data. At the same time, the uncertainty about Trump’s policies has clouded the outlook. The meeting was a disappointment, leading to a collapse in the yen.

USD/JPY key events today

• Final GDP q/q
• Unemployment Claims

USD/JPY technical outlook: Bullish spike continues uptrend

On the technical side, the USD/JPY price has made an impulsive bullish move that has broken past major resistance levels. The move started after a retest of the 30-SMA as support. Bulls have been in the lead since the price broke above the 30-SMA. Therefore, when it pulled back, bulls were ready to make a new high. As a result, the price broke above the 154.00 and the 156.00 key resistance levels. At the same time, the RSI entered the overbought region, indicating a surge in bullish momentum. 

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Bulls are eyeing the 158.01 resistance and might soon reach it. However, after such a sharp move, bulls might get exhausted at the next resistance, leading to a pullback to retest recently broken key levels.

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