USD/JPY Analysis: Fed Rate-Cut Path and CPI Impact on Yen’s Rebound

During Thursday’s Asian session, the Japanese Yen (JPY) recovered slightly against the US Dollar (USD), offsetting some of the losses from the previous day and steering clear of recent monthly lows.

This uptick appears to be a cautious market adjustment before the release of the US Consumer Price Index (CPI) data, which is highly anticipated later today. The CPI report is expected to shed light on the Federal Reserve’s potential rate-cut trajectory, significantly influencing USD demand and setting the future course for the USD/JPY pair.

Currently, the market is grappling with uncertainties regarding the Federal Reserve’s approach to interest rate adjustments, which has kept the USD from gaining solid momentum. Conversely, the Bank of Japan (BoJ) is anticipated to maintain its ultra-accommodative monetary policy in January.

This expectation is bolstered by Japan’s recent earthquake, slowing inflation in Tokyo, and subdued wage growth, which collectively limit the JPY’s upside potential. The positive global market sentiment further dampens demand for the safe-haven JPY, thereby restricting any significant downward movement in the USD/JPY pair.

Investors are momentarily lightening their bearish positions on the Yen, awaiting the US CPI figures, which could catalyze market movements. The CPI is projected to show a modest month-on-month increase to 3.2% annually in December, while the core rate might decrease to 3.8% year-over-year.

This crucial data will be pivotal in shaping the Fed’s policy decisions, thus influencing the USD in the short term.Recent wage data from Japan’s Labour Ministry and Tokyo’s core CPI figures suggest a subdued economic outlook, further reaffirming the likelihood of a continued dovish stance from the BoJ.

The global equity market’s positive dynamics also play a role in undermining the JPY’s appeal, setting a neutral to cautious tone for the USD/JPY pair ahead of the CPI release.

USD/JPY Technical Outlook

The USD/JPY pair is exhibiting neutral trends, hovering close to a potential bullish target near 145.90 but showing signs of a bearish reversal influenced by the current market sentiment. Stochastic indicators suggest a possible downward movement, but the EMA50 provides support for potential gains.

As the market awaits clearer signals, a decisive move below 144.85 could lead to further bearish objectives, starting at 143.45 and extending to 142.35. Conversely, breaching key resistance could reignite the bullish trend, aiming for targets around 147.10.

Today’s expected trading range is between 144.50 support and 146.30 resistance, with a neutral trend forecast for the session.

USD/JPY Live Chart