The Japanese Yen (JPY) continued its upward momentum against the US Dollar (USD) for the second consecutive day on Wednesday, pushing the USD/JPY pair to around the 147.00 level during the Asian session. This move follows hawkish remarks from Bank of Japan (BoJ) Deputy Governor Shinichi Uchida, who kept the door open for further policy normalization, helping the Yen build on its recovery from a one-month low seen earlier in the week.
In contrast, softer US consumer inflation data released on Tuesday has increased expectations that the Federal Reserve (Fed) may cut interest rates at least twice this year, putting downward pressure on the USD and benefiting the lower-yielding JPY. Despite this, an optimistic market outlook, driven by hopes of a US-China tariff truce lasting 90 days, could cap further gains for the safe-haven Yen.
BoJ’s Hawkish Tone and US Inflation Data Impact on USD/JPY
Japan’s Producer Price Index (PPI) data, released Wednesday, showed a 0.2% increase in April, with the annual rate easing slightly to 4%, down from 4.2% the previous month. However, the Yen showed limited movement following the data release, continuing to be supported by expectations of additional rate hikes by the BoJ.
BoJ Deputy Governor Uchida reiterated on Tuesday that the central bank is prepared to raise rates further if economic conditions and inflation evolve as projected. He also noted that Japan’s economic growth is expected to moderate before picking up as global economies recover, reinforcing the Yen’s strength.
Meanwhile, softer US inflation data further tempered expectations for aggressive rate cuts by the Fed. The US Bureau of Labor Statistics (BLS) reported that the headline Consumer Price Index (CPI) dropped slightly to 2.3% YoY in April from 2.4% in March. Core CPI, which excludes volatile food and energy prices, matched consensus estimates, rising 2.8% YoY. Despite the weaker inflation figures, traders continue to price in 56 basis points of Fed rate cuts this year.
Technical Outlook for USD/JPY
From a technical standpoint, the recent breakout above the 200-period Simple Moving Average (SMA) on the 4-hour chart, coupled with positive momentum on daily oscillators, suggests a continued bullish outlook. Should the pair slide below the 147.00 level, it could find support near the 146.60-146.55 region, representing the 23.6% Fibonacci retracement of the strong recovery from the April low. A break below this support zone could trigger technical selling, pushing the pair toward the 146.00 level and the 145.40 region (38.2% Fibonacci level), with the 145.00 psychological mark closely following.
On the upside, resistance is likely around the 147.65 level. If the pair breaks above this barrier, it could rise to the 148.00 round figure and potentially reach the 148.25-148.30 area, marking a one-month peak. Any sustained buying beyond this level may lead the USD/JPY pair to test the 149.00 handle, with further upside targeting the 149.65-149.70 area and ultimately the psychological 150.00 level.
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