Daily Price Outlook
During the European trading session, the USD/JPY pair has shown notable movement, with the Japanese Yen (JPY) strengthening for the second consecutive day, driven by expectations of a potential rate hike by the Bank of Japan (BoJ).
Earlier this Thursday, the pair touched a four-week low, as the Yen gained traction amid market anticipation of tighter monetary policy from the BoJ.
However, despite the Yen's recent rally, the upside for USD/JPY remains limited, as broader market sentiment and a modest recovery in the US Dollar provide resistance to further JPY appreciation.
BoJ's Rate Hike Bets Boost JPY, While US Inflation Data Softens USD
The Bank of Japan’s rate hike speculations are pushing the JPY higher. With inflation pressures in Japan showing signs of broadening, the BoJ is expected to tighten its policy further. The yields on Japanese Government Bonds (JGBs) have reached multi-year highs, reinforcing these expectations.
Governor Kazuo Ueda, alongside Deputy Governor Ryozo Himino, has signaled that the BoJ is prepared to raise interest rates if the economic and price conditions remain favorable.
In contrast, US Treasury bond yields experienced a sharp retreat following the release of December’s US inflation data. The Consumer Price Index (CPI) showed a 0.4% rise in December, with the yearly rate accelerating to 2.9%, from 2.7% in November. The core CPI, excluding volatile food and energy prices, came in at 3.2%, slightly lower than the anticipated 3.3%.
The benign inflation reading has led to expectations that the Federal Reserve might pause its rate-cutting cycle later this month. This has weighed on the US Dollar, pushing it to a one-week low and contributing to the USD/JPY's decline.
Risk-On Mood Caps JPY, USD/JPY Benefits from Fed's Pause Outlook
Besides this, the Yen remains supported by BoJ tightening bets, a risk-on market mood has somewhat dampened its gains. The easing of fears regarding potential trade disruptions under US President-elect Donald Trump has reduced the demand for safe-haven assets like the Yen.
Meanwhile, growing acceptance that the Federal Reserve will halt its rate cuts later this month has revived demand for the US Dollar. This resurgence in USD demand helped the USD/JPY pair rebound above the 156.00 mark.
Despite this, the outlook for the US Dollar remains mixed. The softer US inflation figures, coupled with expectations of further policy tightening by the BoJ, are likely to cap the Dollar’s upside. Traders will now turn their attention to the upcoming US macroeconomic data for further direction.
USD/JPY – Technical Analysis
The USD/JPY pair is trading at 156.077, down 0.21% on the day, as the market consolidates below the pivot point of 155.553. Despite this minor decline, the broader trend suggests potential bullish momentum, particularly if the pair sustains trading above the pivot level.
Immediate resistance is located at 156.909, followed by 158.552 and 159.629. On the downside, immediate support is observed at 154.437, with further levels at 153.260 and 151.973.
The 50-day EMA at 157.598 currently acts as a key overhead resistance, aligning with the immediate resistance zone. The pair’s inability to break above this EMA reflects short-term bearish sentiment, though the price remains within a broader upward channel.
A sustained move above 155.553 could trigger buying interest, targeting 157.365 and beyond, while a drop below 154.437 might signal additional bearish pressure.
Traders should closely monitor price action around 155.553. A decisive break above this level would reinforce the bullish outlook, while failure to hold could shift sentiment toward testing deeper support levels.
Related News
- GOLD Price Analysis – Jan 16, 2025
JOIN LHFX TODAY
24/7 live support, lightning fast withdrawals, guaranteed safe and reliable trading platforms with a true ECN broker.