- USD/JPY remained firm at 149.33 as markets await key US inflation data, which will affect the Fed’s monetary policy outlook.
- US CPI expected to decline in January, fueling debate over Fed easing schedule amid calls for patience
- The Fed is unlikely to change rates in March, but May is divided over the possibility of a rate cut.
- The BOJ’s cautious stance on normalization has been influenced by wage growth, despite US monetary policy adjustments.
The pair USD/JPY remained almost unchanged at the end of the North American session, hovering around the 149.20 zone, awaiting the publication of the latest inflation data in the United States. At the time of writing, the pair is trading at 149.33, up 0.03%.
USD/JPY is at the mercy of US inflation data and US Treasury yields
Caution weighed on traders as Wall Street erased earlier gains, with the Nasdaq and S&P 500 lower. The US Department of Labor is expected to release the January Consumer Price Index (CPI), which is expected to fall from 3.4% to 2.9% year-on-year, while the core CPI is estimated at 3.7%, down from 3.9%. If the data is as expected, the door will open to an easing of monetary policy in the short term.
Meanwhile, Federal Reserve officials opposed lowering rates early; Fed Governor Michelle Bowman said, “It is too early to plan when and how much the Fed will lower rates.” Recently, Richmond Fed President Thomas Barkin stressed: “We (the Fed) are getting closer to the inflation target, but we’re not there yet.”
CME’s FedWatch tool predicts that the Fed will keep rates unchanged at 5.25%–5.50% at the March meeting, but in May there is a 52% chance of a 25 basis point cut.
In Japan, the Gross Domestic Product (GDP) for the fourth quarter of 2023 will be published on Thursday. The economy is expected to recover from a -0.7% contraction in the third quarter to 0.3%. Additional data suggests that private consumption will continue, while business spending is expected to increase. In addition, other data will be known on Tuesday, such as January PPI and machine tool orders.
Regardless of the data, the Bank of Japan says it will not rush to normalize monetary policy until wages rise sustainably. Therefore, USD/JPY may continue to rise, and traders will try to test the 150.00 zone.
USD/JPY Price Analysis: Technical Perspective
The daily chart of USD/JPY suggests that the pair is consolidating after recording a series of dojis. While the Japanese authorities remain cautious about the level of the Japanese yen, buyers are cautious before testing the 150.00 figure. The bullish zone is at 151.38, the November 16 high, followed by the November 13 high of 151.91. On the other hand, if the pair falls below 149.00, it can test 148.00, and then the Tenkan-Sen at 147.74.