The Japanese Yen (JPY) trimmed some of its heavy intraday losses on Friday but remained under pressure amid concerns over rising Japanese government bond (JGB) yields. Japan’s Finance Minister, Katsunobu Kato, highlighted that higher long-term rates could strain Japan’s fiscal situation, leading to speculation that the Bank of Japan (BoJ) might intervene to curb further increases in JGB yields.
Despite this, JPY bears seem hesitant to take aggressive positions, as expectations of continued BoJ rate hikes remain in place, buoyed by stronger-than-expected inflation data. Japan’s National Consumer Price Index (CPI) for January hit a two-year high of 4.0% YoY, up from 3.6% in December, while the core CPI excluding fresh food climbed 3.2% YoY, indicating persistent inflationary pressure that supports a hawkish outlook for the BoJ.
Speculation of BoJ Intervention Limits JPY Depreciation
BoJ Governor Kazuo Ueda also stoked speculation of potential intervention, stating that rising long-term interest rates could affect corporate funding costs, but the BoJ stands ready to respond nimbly if needed. The central bank could use market operations to smooth volatility if necessary. However, analysts believe that rising inflation pressures, coupled with expectations of sustained wage growth, could lead to more aggressive rate hikes from the BoJ, which may limit any meaningful depreciation of the JPY in the near term.
In contrast, the US Dollar (USD) faced headwinds, hitting its lowest level since December 10 on Thursday. A disappointing sales forecast from Walmart raised concerns about US consumer health, while protectionist trade policies from US President Donald Trump added to fears of rising inflation. These concerns, along with the Federal Reserve’s cautious stance on rate cuts due to persistent inflation, kept the USD on the back foot.
Technical Analysis: USD/JPY Tests Key Support Levels
From a technical standpoint, the USD/JPY pair’s break below the 150.90-150.00 support zone triggered bearish sentiment, with oscillators on the daily chart remaining deep in negative territory, suggesting further downside risk. Any attempt to move back above 150.00 could be seen as a potential selling opportunity, with the next resistance near 151.00.
On the downside, the 149.30-149.25 region, a multi-month low, is the immediate support, followed by the 149.00 mark. A decisive break below these levels could open the door for a deeper decline towards the December 2024 swing low near 148.65.
In summary, USD/JPY bears hold the upper hand while the pair remains below key support levels, with further downside potential unless a strong recovery pushes the pair back above 151.00.
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