Japanese Yen Weakens as Inflation Softens, While USD Maintains Steady Stance
Arslan Butt•Friday, January 19, 2024•2 min read
This, combined with a stable performance in equity markets, diminishes the appeal of the safe-haven
JPY and supports the ongoing upward trend of the USD/JPY pair witnessed over the past three weeks.
Conversely, the US Dollar (USD) continues its sideways consolidation near a one-month high, benefiting from optimism that the Federal Reserve (Fed) may keep interest rates elevated for a longer period. Strong US macroeconomic data released this week suggests economic resilience and has led investors to reduce expectations of a Fed rate cut in March.
This has contributed to higher US Treasury bond yields and supports the positive outlook for the USD/JPY pair.
Nevertheless, geopolitical tensions are preventing significant JPY losses and serving as a ceiling for the currency pair ahead of the critical BoJ meeting on January 22-23.
The Japanese Yen remains in proximity to a nearly two-month low against the US Dollar after the release of subdued consumer inflation figures in Japan. The Consumer Price Index (CPI) data revealed a decrease from 2.8% YoY to 2.6% in December, marking the lowest level since June 2022.
Additionally, Japan’s core inflation rate, which excludes volatile fresh food prices, fell from 2.5% in November to 2.3%, its lowest point since July 2022. These factors, coupled with other economic indicators, affirm the Bank of Japan’s commitment to its ultra-dovish stance.
Investor expectations of an early Federal Reserve rate cut diminished further following a positive labor market report, including a decrease in Jobless Claims to their lowest level since September 2022. This data, combined with robust US Retail Sales figures, underscores the resilience of the US economy and reduces the likelihood of a Fed rate cut in March.
Market indicators currently suggest a 57% chance of an interest rate cut at the March FOMC meeting, down from 75% a week ago.
Geopolitical developments, such as the Houthi attack on a US-owned tanker ship, present potential risks for further Middle East military escalation, which could bolster the JPY’s safe-haven status and constrain significant upside for the USD/JPY pair.
Traders are closely monitoring US macroeconomic data, including the Preliminary Michigan Consumer Sentiment, Inflation Expectations, and Existing Home Sales, for market direction. However, market attention remains focused on the upcoming BoJ monetary policy meeting, expected to play a crucial role in influencing near-term JPY price dynamics.
USD/JPY Technical Outlook
The USD/JPY pair has been trading sideways, settling above the 148.00 level. It awaits a positive catalyst to support the expected bullish trend in the intraday and short term, targeting 150.00. The EMA50 provides support for this optimistic scenario, with a potential target of 151.70 after surpassing the previous level.
A break below 147.15 could exert negative pressure, with a primary target at 145.90.
Today’s expected trading range is between 147.50 (support) and 149.10 (resistance), with a prevailing bullish trend for the day.
USD/JPY Live Chart
USD/JPY
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ABOUT THE AUTHOR
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Arslan Butt
Index & Commodity Analyst
Arslan Butt serves as the Lead Commodities and Indices Analyst, bringing a wealth of expertise to the field. With an MBA in Behavioral Finance and active progress towards a Ph.D., Arslan possesses a deep understanding of market dynamics.His professional journey includes a significant role as a senior analyst at a leading brokerage firm, complementing his extensive experience as a market analyst and day trader. Adept in educating others, Arslan has a commendable track record as an instructor and public speaker.His incisive analyses, particularly within the realms of cryptocurrency and forex markets, are showcased across esteemed financial publications such as ForexCrunch, InsideBitcoins, and EconomyWatch, solidifying his reputation in the financial community.
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