USD/JPY Soft after Wednesday’s 20-Year Highs

  • USDJPY
    (${instrument.percentChange}%)

USD/JPY Analysis

The pair runs its sixth straight profitable week and rose above 126.00 on Wednesday, for the first time since May 2002, in the aftermath of the surge in US Inflation. Tuesday's data had shown that Consumer Price Index (CPI) jumped 8.5% year-over-year in March, marking the highest price since December 1981.

Although not as bad as feared and mainly driven by energy prices, these figures are supportive of the Fed's aggressive monetary tightening prospects, with key Fed officials further pushing their hawkish message after the CPI print.

Federal Reserve governor Lael Brainard reiterated her view that inflation is "too high" and bringing it down is "our most important task", speaking at Wall Street Journal's Jobs Summit after the CPI print. [1]

Board member Mr Waller followed with CNBC interview yesterday, saying that he prefers a "front-loading approach" on interest rates and a 50 basis point hike in May "would be consistent with that, and possibly more in June and July". [2]

USD/JPY eases today, as the majority of Japanese companies are worried over the Yen's weakness, based on a Reuters poll. The survey found that 76% of firms say can't tolerate yen weakness at current levels and that around 50% expect a hit to earnings [3]. A soft Yen is generally good for businesses, since Japan is an exporting country, but the surge in energy and commodity prices works against that.

From here, further pull-back towards mid-124.00s would not be unreasonable, although a catalyst would be needed for a bigger correction below 124.00. Despite today's slide, the greenback is in the driver's seat and the monetary policy differential between the central banks of the US and Japan, works in its favor. As such, bulls can push for fresh highs, even if futher correction is required, but they many not yet be ready to take 126.88 out.

Market participants now turn to US Retail Sales (12:30 GMT), while caution is needed to liquidity/volatility conditions, as many stock markets are closed tomorrow, including Wall Street, in observance of Good Friday.

Nikos Tzabouras

Senior Market Specialist

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 14 Apr 2022 https://www.wsj.com/video/the-fed-lael-brainard-on-inflation-and-the-labor-market/F7B01AEB-4BBC-4D43-A774-3228A2C5C064.html

2

Retrieved 14 Apr 2022 https://www.youtube.com/watch

3

Retrieved 18 May 2022 https://www.reuters.com/world/asia-pacific/exclusive-three-quarters-japan-firms-bemoan-current-yen-weakness-bad-business-2022-04-13/

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