Our August tactical outlook focuses on JPY pairs. Technical analysis suggests a potential yen strengthening against the USD, AUD, and NZD due to BoJ forecasts and trade deals.
For the August outlook, we will focus on three JPY currency pairs: USD/JPY, AUD/JPY, and NZD/JPY to take note of in the medium-term horizon (multi-week), according to the latest developments in macro and momentum factors (technical analysis).
The recent Bank of Japan (BoJ) monetary policy meeting concluded on July 31. For the fourth consecutive meeting, the BoJ left its short-term policy interest rate unchanged at 0.5% but upgraded its inflation forecast more than expected.
BoJ’s upgraded inflation forecasts keep interest rate hike alive
The BoJ raised its inflation projection (core-core CPI, excluding fresh food and energy) to 2.8% year-over-year (y/y) for the current fiscal year 2025, from its earlier forecast of 2.3% made in April. FY 2026’s inflation forecast was also revised upwards to 1.9% y/y from 1.8%, while FY 2027’s forecast was maintained at 2%.
In addition, the noise from the “US tariffs threat” has subsided as the US and Japan have struck a trade deal to reduce existing levies on Japanese exports to the US by 15% from 25%-27.5%, effective1 August.
Hence, market participants still expect BoJ to enact another interest rate of 25 basis points before 2025 ends after its last hike in January. In the latest survey conducted by Bloomberg, 42% of 45 economists anticipate the BoJ’s rate hike move to come in October, a jump from 32% in the previous survey (see Fig. 1).
Short-term interest rate futures traders have also increased their bets on another potential BoJ interest rate hike in 2025. The forward-implied short-term policy interest rate projection for December 2025, derived from Japanese interest rate futures contracts, has shifted upwards to 0.68% from 0.58% seen three months ago. (see Fig. 2).
US Treasuries-JGBs yield spreads remain below key resistances
Since 6 January 2025, the 10-year and 2-year yield spreads of the US Treasury notes over Japanese Government Bonds (JGBs) have continued to narrow (trended downwards) below their respective key medium-term pivotal resistances of 3.60% and 3.84%, respectively.
If their downward trajectory remains intact, the 10-year and 2-year yield spreads of the US Treasury notes over JGBs may see further downside towards 2.47% before 1.60% and 2.90% before 2.05% respectively, which in turn may trigger further downside pressure on the USD/JPY (see Fig. 3).
USD/JPY false bullish breakout may put a floor on yen weakness
Last Friday’s 1 August bearish price action of the USD/JPY has wiped out all its accumulated gains of the prior four sessions and formed a weekly bearish “Shooting Star” candlestick pattern.
These observations suggest a potential failure bullish breakout above the key 200-day moving average and the upper boundary of its medium-term ascending range configuration in place since the 22 April 2025 low (see Fig. 4).
Watch the 151.30 key medium-term pivotal resistance, and a break below 145.95 (also the 50-day moving average) may expose the medium-term ascending range support of 144.50.
On the other hand, a clearance above 151.30 sees the major resistance coming in at 154.50 (also a major descending trendline from 3 July 2024 high).
AUD/JPY bearish breakdown from “Double Top”
The bearish breakdown of a four-week bearish “Double Top” configuration on last Friday, 1 August, right below the former long-term secular ascending channel support from March 2020, suggests that the recent medium-term uptrend phase of the AUD/JPY from the 9 April 2025 low of 86.05 is likely to have ended.
The daily MACD trend indicator has flashed out an earlier bearish divergence condition on Monday, 28 July and continues to inch downwards. The observations suggest a medium-term uptrend termination on the AUD/JPY that may kickstart a potential multi-week corrective decline sequence (see Fig. 5).
Watch the 97.30 key medium-term pivotal resistance, and a break below 94.80 (also the 50-day moving average) sees the next medium-term supports coming in at 93.95 and 92.30.
However, a clearance above 97.30 invalidates the bearish scenario for the continuation of the bullish trend towards the next medium-term resistances at 98.70 and 99.80.
NZD/JPY bearish breakdown below 20-day and 50-day moving averages
The price actions of the NZD/JPY have broken down below its 20-day and 50-day moving averages, which suggests the potential termination of the medium-term uptrend phase from the 9 April 2025 low to the 28 July 2025 high.
In addition, the daily MACD trend indicator has flashed out a prior bearish divergence condition since 16 July 2025 and continues to drift downwards. These observations advocate the potential start of a multi-week corrective decline sequence.
Watch the 89.70 key medium-term pivotal resistance. A break below the 86.95 intermediate support (also the key 200-day moving average) may expose the medium-term supports at 85.90 and 84.40.
Conversely, a clearance above 89.70 sees a potential squeeze up for the next medium-term resistance to come in at 92.30.