The Japanese Yen (JPY) has exhibited a modest recovery against the US Dollar (USD) after reaching its lowest level since November 28. However, a substantial upward movement remains elusive as recent data reveals a softening inflation rate in Japan. This follows last week’s release of sluggish wage growth figures, reinforcing expectations that the Bank of Japan (BoJ) is unlikely to shift away from negative interest rates during its upcoming policy meeting.
The generally positive sentiment in equity markets acts as a headwind for the traditionally safe-haven JPY. Simultaneously, diminishing expectations for an early interest rate cut by the Federal Reserve (Fed) contribute to higher US Treasury bond yields, widening the US-Japan rate differential. This factor, coupled with the overall bullish tone surrounding the USD, supports the potential extension of the USD/JPY pair’s near-three-week-old uptrend.
Bullish traders view any corrective decline as an opportunity, and this sentiment is expected to persist ahead of the BoJ meeting scheduled for January 22-23. The US economic docket, featuring Preliminary Michigan Consumer Sentiment, Inflation Expectations, and Existing Home Sales data, will influence market direction on Friday. Speeches by influential FOMC members and US bond yields will also play a role in shaping USD/JPY dynamics as the week concludes.
In technical analysis, the USD/JPY pair retains bullish control above the 100-day Simple Moving Average (SMA) and the 61.8% Fibonacci retracement level of the November-December decline. The breakout above the 147.50 confluence, comprising the 100-day SMA and Fibonacci level, favors bullish momentum. Oscillators on the daily chart, comfortably holding in positive territory and distant from overbought levels, indicate a potential upside for the pair.
Traders are advised to await confirmation through sustained buying beyond the 148.50-148.55 region before positioning for further gains. The path of least resistance appears to be to the upside, with the potential for an upward trajectory towards the 149.00 round figure and, subsequently, the 149.70-149.75 region. A breach of the psychological 150.00 mark could mark a significant milestone for the USD/JPY pair.
On the downside, corrective declines towards the 147.50 confluence support are viewed as buying opportunities, with limited expected downside. A break below this level might prompt technical selling, potentially dragging spot prices towards the 147.00 round figure, acting as a pivotal point. A further decline to the 146.60-146.50 region could follow if the 147.00 level is breached.