The USD/JPY pair is trading at its highest level in several months, surpassing the psychological 155.00 mark in early European trading on Wednesday. This marks the third consecutive day of gains for the US Dollar (USD) against the Japanese Yen (JPY), driven by continued strength in US Treasury yields and investor skepticism about the Bank of Japan‘s (BoJ) ability to raise interest rates.
Despite Japan’s Producer Price Index (PPI) showing a 3.4% year-on-year increase for October—higher than expected—market participants remain cautious about the BoJ’s ability to tighten monetary policy. The nation’s political instability, coupled with the BoJ’s uncertain stance on rate hikes, continues to undermine the JPY. Further complicating matters, US President-elect Donald Trump’s proposed tariffs are adding downward pressure on the Yen.
The rally in the USD is also supported by expectations that Trump’s expansionary fiscal policies will increase inflation, further reducing the likelihood of aggressive Federal Reserve rate cuts. These expectations have led to a rise in US Treasury bond yields, reinforcing the USD’s appeal relative to the lower-yielding JPY.
While the USD continues to benefit from these dynamics, potential intervention risks and the market’s cautious mood ahead of the US inflation report could cap the pair’s upside. The Consumer Price Index (CPI) for October, due later today, is expected to show a year-on-year rise of 2.6%, which could influence market sentiment regarding US monetary policy.
PPI Surge in Japan, But Political Uncertainty Caps Yen’s Strength
Japan’s Producer Price Index (PPI) for October increased by 0.2% month-on-month, reflecting rising costs that could fuel inflation, though the impact is tempered by concerns that higher producer prices, exacerbated by a weak Yen, could dampen household spending. The data has further highlighted the BoJ’s difficulty in tightening its ultra-loose monetary policy, particularly given Japan’s political uncertainty.
The BoJ’s October meeting minutes revealed divisions among policymakers regarding the timing of rate hikes, fueling concerns about the central bank‘s ability to effectively manage inflation amid external pressures, such as potential tariffs under the incoming US administration. As a result, the JPY remains vulnerable near multi-month lows, offering a tailwind for the USD/JPY pair.
Market Focus Shifts to US Inflation Data
The focus now shifts to the US inflation data set for release later today. A stronger-than-expected CPI print could reinforce the current USD rally, pushing the USD/JPY pair higher. Conversely, any weakness in the inflation data could diminish expectations for future Fed rate cuts, potentially limiting USD strength and offering some support to the Yen.
Technical Outlook for USD/JPY
From a technical standpoint, USD/JPY continues to face resistance at the 155.00 level, a key psychological barrier. A decisive break above this level could open the door for further gains, with the next target near the July swing high at 155.20. If the pair maintains momentum, it could aim for the 156.00 and 156.60 levels.
On the downside, potential support lies at the 154.00 mark, with further pullbacks likely to find support around 153.40. Any deeper declines would likely encounter buying interest near 153.00, with critical support at 152.65-152.60. A sustained drop below this zone could shift the market bias toward the downside, potentially testing the 200-day moving average near 151.60-151.55.
The USD/JPY pair remains on track for further upside, but traders will be closely watching the upcoming US inflation data for signals on the Federal Reserve’s next moves.
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