Daily Price Outlook
During the European trading session, the USD/JPY currency pair failed to stop its bearish rally and remained under pressure around the 153.70 level.
The Japanese Yen (JPY) strengthened after Japan's Producer Price Index (PPI) data came out stronger than expected, increasing the chances that the Bank of Japan (BoJ) will raise interest rates again.
This gave the JPY a boost, making it more attractive to investors. Meanwhile, a drop in US Treasury bond yields added more pressure on the US Dollar (USD), further pushing USD/JPY lower.
However, the downside for the pair remains limited due to concerns over new tariffs imposed by US President Donald Trump on steel and aluminum imports, which could impact global trade and weigh on the JPY.
Moreover, the US Federal Reserve (Fed) is expected to maintain its hawkish stance, especially after strong US inflation data released on Wednesday. This could support the USD and prevent the USD/JPY pair from falling further.
As a result, traders should be cautious before expecting a significant drop in the currency pair, especially after it reached a one-week high the previous day.
USD/JPY Struggles as Fed's Hawkish Stance Clashes with BoJ Rate Hike Expectations
On the US front, the broad-based US dollar failed to stop its bearish rally and remained under pressure as the latest inflation data reinforced expectations that the Federal Reserve (Fed) will keep interest rates high for longer.
On the data front, the US Consumer Price Index (CPI) rose 0.5% in January, marking the biggest increase since August 2023. On a yearly basis, inflation climbed to 3%, while core CPI (excluding food and energy) reached 3.3%.
This suggests that inflation remains sticky, supporting the Fed’s hawkish stance. Fed Chair Jerome Powell also signaled that monetary policy will stay restrictive as inflation is still above the 2% target. Meanwhile, the yield on the 10-year US Treasury bond saw its biggest jump since December, increasing the interest rate gap between the US and Japan, which could help limit the US dollar’s losses.
Japanese Yen Gains on BoJ Rate Hike Hopes but Faces Trade Uncertainty
Apart from this, the Japanese Yen (JPY) gained strength as inflationary pressures continued to build. Japan’s Producer Price Index (PPI) increased by 0.3% in January and 4.2% year-over-year, reinforcing expectations that the Bank of Japan (BoJ) might raise interest rates again. BoJ Governor Kazuo Ueda and Deputy Governor Himino also hinted at a possible rate hike if economic conditions align with projections.
However, JPY bulls showed some caution due to concerns that US President Donald Trump’s tariffs on commodity imports could hurt Japan’s economy.
Looking ahead, traders will focus on the upcoming US Producer Price Index (PPI) and weekly jobless claims data, which could influence the US dollar’s movement and impact the USD/JPY pair.
USD/JPY – Technical Analysis
The USD/JPY pair is trading at 154.05, showing signs of weakness as it struggles to hold above its pivot point at 154.20. A failure to maintain this level suggests bearish momentum could intensify, with immediate support at 153.74.
A break below this threshold could expose the pair to deeper declines toward 153.27 and 152.77, reinforcing the case for a potential downside move.
On the upside, resistance is forming at 154.80, with further hurdles at 155.24 and 155.86. A push above these levels could reignite bullish sentiment, paving the way for renewed buying interest. However, current price action suggests selling pressure is capping gains, limiting any immediate recovery attempts.
The 50-day EMA at 153.35 serves as a key indicator to watch. If USD/JPY drops below this mark, it could confirm further downside potential, triggering additional selling pressure.
Conversely, a sustained move above the pivot at 154.20 may shift momentum in favor of buyers, though a decisive break above 154.80 would be required to confirm an uptrend.
Traders looking to capitalize on this setup may consider selling below 154.18, with a take-profit target at 153.50 and a stop-loss set at 154.78 to manage risk effectively. While short-term volatility remains, overall sentiment leans bearish unless buyers reclaim key resistance levels.
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