USD/JPY was extremely bullish last year until October, with the FED raising interest rates in a hectic manner which was keeping the USD bullish, while the Bank of Japan was remaining on hold as inflation stayed low in Japan, which was keeping the JPY bearish. But, everything changed in October as Japanese officials intervened when USD/JPY reached 152, while the FED softened the rhetoric and slowed down with rate hikes.

The reversal was brutal and the price fell below 127 in January after the soft US CPI inflation report which fell to 6.5% in December. But, the lows have been getting higher since then and last Friday’s employment and services reports from the US showed a decent bounce in activity. That helped the USD which seems to have turned bullish now and so has USD/JPY .

Buyers pushed this pair above moving averages and now the 200 SMA (purple) has turned into support on the H4 chart. The FED is sounding less dovish now and Powell did say that their policy will depend on the data, which is showing positive signs recently.

Comments from Williams

• We still have some work to do to get inflation under control
• Asked about whether jobs data would change his view on terminal rates, he says December dot plot views are
• Still ‘very reasonable’ due to totality of all data
• Fed will watch the data to determine path of rate rises
• There is a lot of uncertainty around inflation outlook
• Maybe services prices stay elevated, and if that happens we’ll need higher rates
• Some underlying inflation numbers like Dallas Fed trimmed mean is around 3.75% and Fed funds is about 1 percentage point above that. To get sufficiently restrictive, you need to get higher than that.
• I broadly see financial conditions as having moved tighter
• I’m definitely seeing more positive signs on global growth and the US economy is also showing more resilience
• Demand is still very strong
• We’re seeing a significant slowdown in housing, especially in permits but we’re still seeing a lag in completions. So we might not see the construction sector job losses yet.
• Still seeing high demand for services and labor
• There may be some reasons to expect labor to loosen up
• Inflation expectations have stayed very well anchored
• Rent inflation looks to ebb over time

He certainly kept the 5-5.5% range on the table which is higher than what markets were pricing in a week ago. Although, he repeatedly highlighted the dependence on the economic data. He did offer an encouraging take on the economy and I think that’s ultimately what filters back into the rate outlook.

USD/JPY Live Chart