USD/JPY Bullish Bias Intact Ahead of US Inflation Update

  • USDJPY
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USD/JPY Analysis

The pair extended this year's advance to the highest levels since late-1986 a few weeks ago, but subsequently retreated, in a move that has caused speculation that Japanese authorities may have intervened in the FX market to support the ailing yen. However, this pullback was rather shallow and USD/JPY rebounds, maintaining its bullish momentum and the ability to set new highs past 160.00.

The Bank of Japan raised rates out of negative territory and abandoned its yield curve control in March, in watershed shift towards a less loose setting. The action has not failed to stem the Yen's relentless devaluation against the greenback, as policymakers adopted a cautious approach and maintained their accommodative bias. Furthermore, their US counterparts have turned cautious towards lowering rates, as inflation slowdown has stalled this year.

On the other hand, it is reasonable to expect more rate hikes this year by the BoJ and the International Monetary Fund (IMF) endorsed such moves today, even if it cautioned towards gradual and data-dependent path [1]. On the other side the Pacific, Fed is still expected to lower rates this, despite the higher-for-linger mantra.

Even though at a slow pace, the favorable policy dynamics are shifting and this will eventually weigh on USD/JPY. As such, we can see another breach of the EMA200 that would threaten the bullish bias, but we are cautious around sustained weakness below it, as the downside contains multiple support levels. The next leg of the move will be determined by Wednesday's US CPI inflation update.

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Nikos Tzabouras

Senior Financial Editorial Writer

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 24 Jun 2024 https://www.imf.org/en/News/Articles/2024/05/13/pr24156-japan-imf-executive-board-concludes-2024-article-iv-consultation

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