USD/JPY Mixed After Hot Japan CPI & BoJ Nominee Speech
USD/JPY Analysis
Inflation in Japan continues to rise, with the Consumer Price Index (CPI) excluding fresh food, coming in at 4.2% y/y in January. This is the highest level since late 1981 and well above the central bank's 2%, which maintains the ultra-loose stance with negative rates and yield curve control.
Back in December it had opened the door to policy normalization, with the surprise widening of its 10-year JGB yield target to 0.5% [1], but did not follow through last month. This process will likely be gradual and lengthy and today's comments by Mr Ueada, who is the nominee for next governor of the BoJ, did not point to any sudden changes.
According to Reuters, Mr Ueda said today that the banks policy is "a necessary, appropriate means to achieve 2% inflation". He did however note that the BoJ "must consider normalising monetary policy", if trend inflation rises significantly. [2]
USD/JPY saw two-way action overnight on these developments and markets turn to the US PCE Inflation figures for the next leg of the move. Last week's CPI was hotter than expected last week, reinforcing the heightened expectations around the Fed's policy path, in the aftermath of the blowout jobs report at the beginning of the month. CME's FedWatch Tool assigns the highest probability to rates peaking at 5.5%, suggesting another 75 basis points worth of rate hikes. [3]
This hawkish repricing has boosted the greenback, which runs a profitable month and set new 2023 highs yesterday. It has the 38.2% Fibonacci of the f the October multi-decade high/January low fall in its crosshairs (136.66), but 139.39-58 may prove elusive in the near-term.
On the other hand, USD/JPY has been facing headwinds over the last few days and pressure towards the EMA200 (132.60) would not be unreasonable. Daily closes below it would open the door to 130.56, but strong catalyst would be required for that and the downside looks well protected.
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
| Retrieved 24 Feb 2023 https://www.boj.or.jp/en/mopo/mpmdeci/mpr_2022/k221220a.pdf | |
| Retrieved 24 Feb 2023 https://www.reuters.com/markets/asia/incoming-boj-chief-ueda-speak-parliament-yield-cap-comes-under-attack-2023-02-23/ | |
| Retrieved 09 Dec 2023 https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html |
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