The Japanese Yen (JPY) is on a downward trend for the second consecutive day against the US Dollar (USD), propelling the USD/JPY pair to a new weekly high on Wednesday. Despite spot prices lingering below the psychological level of 145.00, a bullish fundamental backdrop suggests the potential for an upward trajectory.
Recent data indicates a decline in inflation rates in Tokyo, and the Labour Ministry’s report reveals a 20th consecutive month of real wage contraction in Japan for November. This reaffirms market expectations that the Bank of Japan (BoJ) will maintain its ultra-dovish policy stance during the January 22-23 meeting. The BoJ’s inclination towards negative interest rates is further supported by government stimulus measures in response to a recent earthquake, delaying the central bank‘s plan to pivot away from negative rates.
The stability in equity markets contributes to a decline in demand for the safe-haven JPY, benefiting the USD/JPY pair. However, subdued US Dollar (USD) activity, driven by uncertainty surrounding the Federal Reserve’s (Fed) rate-cut trajectory, is restraining bulls from making fresh commitments and limiting gains. Traders are also exercising caution, awaiting the release of the latest US consumer inflation figures on Thursday.
In terms of technical analysis, the USD/JPY pair has experienced an upward bounce from the crucial 200-day Simple Moving Average (SMA), validating a positive outlook. A breakthrough above the psychological level of 145.00 would reinforce the bullish sentiment, potentially pushing the pair towards the 146.00 neighborhood, last seen during the previous week. Intermediate resistance is expected in the mid-145.00s.
Conversely, support is anticipated around the 144.50 region, protecting the immediate downside, followed by the Asian session low near 144.30. A further decline could lead to support at 144.00, and a break below this level might prompt a challenge to the 200-day SMA around 143.35, signaling potential technical selling. The USD/JPY pair’s movements are closely tied to economic data releases and broader market sentiment.