USD/JPY Technical Analysis: A Shift in Market Dynamics Amid BoJ and Fed Policies

The USD/JPY pair recently halted its two-day winning streak, rebounding from a weekly low near 141.85. This shift follows Japan’s November core Consumer Price Index (CPI), which slightly decelerated, intensifying speculation about the Bank of Japan’s (BoJ) policy transition from its long-standing dovish stance.

BoJ’s October meeting minutes reinforced their commitment to maintaining an accommodative policy, further weighing on the Japanese Yen.

Conversely, the US Dollar is recovering from recent lows, driven by downward revisions in US Q3 GDP figures and expectations of the Federal Reserve (Fed) initiating rate cuts from March 2024. However, persistent low US Treasury yields, influenced by Fed policy predictions, may limit the Dollar’s gains.

In Japan, inflation remains above the BoJ’s 2% goal, with projections of stronger wage growth in the coming year, potentially prompting a BoJ policy shift as early as April.

This context urges caution among traders placing bullish bets on the USD/JPY pair, with upcoming US Core PCE data likely to affect the Fed’s decisions and the Dollar’s trajectory. Japan’s recent CPI figures show a slowdown in inflation, both in general and core measures, yet still exceeding BoJ’s targets, hinting at a possible near-term shift in BoJ policy.

BoJ’s October minutes revealed support for maintaining the Yield Curve Control policy to foster wage growth.

Amid these factors, the Dollar struggles near multi-month lows, reflecting anticipation of Fed easing and the US GDP’s revised growth rate of 4.9%. Jobless claims in the US remain low, further influencing market dynamics. The likelihood of Fed rate cuts in 2024, indicated by the CME Group’s FedWatch Tool, sets the stage for future Dollar movements.

Investors now anticipate the US Core PCE Index, with expectations of a 0.2% rise in November and an annual rate of 3.3%. Additionally, upcoming US Durable Goods Orders data will provide further insights, impacting short-term trading strategies for the USD/JPY pair.

From a technical perspective, the USD/JPY pair’s recent break below the 142.76 level and subsequent close below it signal a continued bearish trend on both intraday and short-term scales, with the next target at 140.65. The EMA50 exerts ongoing negative pressure, sustaining the bearish outlook, conditional on price stability below 142.76.

Today’s expected trading range lies between 141.60 support and 143.20 resistance, with the overall trend leaning bearish.

USD/JPY Live Chart