The USD/JPY pairing has retreated to 147.950 after encountering strong buying interest at 148.70 on January 23, underpinned by a robust U.S. dollar that continues to suppress the Japanese Yen. This dynamic follows a consistent preference for the dollar throughout Tuesday’s trading session.

Bank of Japan’s Inflation Challenge

The Bank of Japan (BoJ) persists with its negative interest rate policy, set at -0.1%, as it monitors inflationary trends, wary of premature cooling. Contrary to the inflation woes experienced globally, Japan’s central bank is uniquely challenged with fueling sustainable inflation.

With an entrenched history of deflationary pressures, the BoJ remains cautious, fearing that any rate hikes could entrench deflation deeper into Japan’s economic fabric without concurrent wage and inflation growth.

Inflation Figures in Focus

Attention now turns to the upcoming Tokyo Consumer Price Index (CPI) release, a critical indicator for both market participants and the BoJ. Anticipated on Thursday, these figures will be scrutinized for any indication that inflation is receding below the BoJ’s target of 2%.

Projections suggest a slight decrease in the annual Tokyo CPI, potentially slipping from 2.1% to 1.9% for the year concluding in January.

U.S. Inflation Data on the Horizon

Closing out the week, Friday’s U.S. Personal Consumption Expenditures (PCE) will take centre stage. As the Fed’s preferred gauge of inflation, the Core PCE Price Index for December is expected to show a marginal increase from 0.1% to 0.2%.

Moreover, the year-over-year Core figure is forecasted to show a deceleration to 3.0% from 3.2%, offering fresh insights into the Fed’s inflation narrative and potentially influencing policy directions.

USD/JPY Technical Outlook

In today’s currency market, the USD/JPY pair showcases a vigilant trading stance, hovering near the 147.984 mark. Despite a brief ascent to a peak at 148.70 on the previous day, the pair has found itself in a consolidation phase, with the pivot point, delineated by the green line at 147.230, serving as the barometer for immediate market direction.

The pair faces resistance at three key levels: 148.499, forming the first hurdle to an upward climb; followed by 149.675; and the significant psychological barrier of 150.934, which, if breached, could signal a bullish advancement.

Conversely, the support levels lie beneath the pivot point, with 147.100 providing the first layer of defence against bearish pressure. Further down, 146.204 and 144.441 stand as additional bulwarks to contain any downward moves.

The 50 EMA, at 147.230, currently intersects the pivot point, suggesting a potential inflexion point that may dictate the near-term trajectory of the pair. The proximity of the 50 EMA to the current trading price implies a critical moment for trend confirmation.

Traders are now closely monitoring the oscillation between these bounds, with a break above the pivot potentially catalyzing a test of higher resistance, while a fall below could see the pair seeking support.

USD/JPY Live Chart