Home Business News USD/JPY outlook amid US data and Japanese central bank warnings

USD/JPY outlook amid US data and Japanese central bank warnings

29th Mar 24 12:04 pm

The USD/JPY pair maintains modest positive momentum for the second consecutive day near 151.45 at the start of trading on Friday.

The cautious approach of the Bank of Japan (BoJ) to maintain accommodative monetary conditions is exerting some selling pressure on the Japanese yen, while strong comments from Federal Reserve officials provide some support for the dollar, thus supporting the rise of the USD/JPY pair.

Japanese Statistical Bureau data indicated that the Consumer Price Index (CPI) in Tokyo for March rose by 2.6% every year.

The CPI in Tokyo excluding fresh food and energy rose by 2.9% every year, down from a 3.1% increase in February.

Therefore, the yen is believed to remain under pressure following Japanese inflation data and cautious comments from Japanese authorities. However, potential intervention by Japanese authorities may mitigate the yen’s weakness.

Strong US economic data and Federal Reserve discussions about long-term interest rate hikes are also supporting the strength of the US dollar against its competitors.

As trading begins on Friday, with European and American markets on holiday, the USD/JPY pair is trading sideways in a narrow range around 151.30. The pair is expected to remain trapped in this tight range until markets gain more clarity about the Bank of Japan’s covert intervention plans to support the weak Japanese yen.

Investors are closely focused on Core Personal Consumption Expenditure (CPE) Price Index data in the United States, which will be released today, Friday. Expectations are for a steady increase in the annual core inflation gauge of 2.8%. Monthly core inflation data is expected to rise slowly by 0.3% from January’s reading of 0.4%. Investors are particularly keen on inflation data to gauge when the Federal Reserve might begin cutting interest rates.

With increased expectations of the Bank of Japan’s intervention in the foreign exchange market due to investor uncertainty and doubts that the Bank of Japan will be able to progress in raising positive interest rates because of uncertain wage growth expectations, the dollar is expected to remain strong. This is supported by the summary of opinions at the Bank of Japan’s March meeting, released yesterday, which indicated a need for gradual action in easing extremely accommodative monetary policy in Japan.

The dollar is expected to remain strong, supported by doubts and uncertainty about whether the Federal Reserve will cut interest rates three times this year as expected, which helps to limit the downside of the USD/JPY pair. The better-than-expected release of US Durable Goods Orders last Tuesday suggests a healthy economy. Alongside stable inflation, this may compel the Federal Reserve to keep interest rates high for a longer period, thus supporting higher US Treasury bond yields and consequently strengthening the US dollar. This indicates that the path of least resistance for the USD/JPY currency pair is upwards fundamentally.

Next week, the release of Japan’s large-scale Tankan Industrial Index for the first quarter (Q1) will be accompanied by the US Institute for Supply Management (ISM) Purchasing Managers’ Index (PMI) report. The US Non-Farm Payrolls (NFP) report for March on April 5 will be a closely watched event by the markets, often causing significant market volatility, especially if it brings surprises.

Technical Analysis of the USD/JPY Prices:

From a technical perspective, some buying activity and continued upward movement are considered signals for a potential breakthrough and stabilization above the year-to-date peak level at 152.00. This would serve as a new incentive for further upward movement. Additionally, oscillation indicators on the daily chart are stabilizing in the positive zone, suggesting that the USD/JPY pair may extend its current primary uptrend, which has been ongoing since January 2023, to rise further toward the major resistance at 153.00 in the medium term.

USD/JPY – Prices Chart –-XS.com MT4.

On the four-hour chart, any corrective downside movement may now be viewed as a buying opportunity and remains limited near the 151.00 level. However, a convincing and sustained breakthrough below this level may target the next support level near the 150.25 area.

Following this is the major support level at 150.00, which if consistently breached, may expose the USD/JPY pair to further deep corrective downside towards the 149.35 and 149.30 areas on its way to test the long-term support at 149.00, which is the weaker scenario.

Moreover, the daily chart indicates that the USD/JPY pair has reached peaks around the 151.20 and 151.90 areas, with the upward trend continuing. A clear breakthrough above 152.00 is considered a confirmation of the pair’s rise towards testing the 153.00 level. On the other hand, the pair may decline if it consolidates below 151.00, with the first support at 150.44, followed by 150.00 and 149.84 in the near and medium term.

Support levels: 151.33 – 151.22 – 151.045

Resistance levels: 151.54 – 151.67 – 151.85

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