USDJPY Heads Higher As Traders Bet On Bullish US Inflation Figure

Summary:

The USDJPY pair is currently at 32-year highs as traders feed on recent dovish statements by BOJ and bet on positive US inflation outlook.

The Japanese yen continued its losses against the dollar on Tuesday as the market awaited key US inflation figures. USDJPY was trading at 149.61, at 9.40 am UTC, which was +0.17% above its level 24 hours earlier. The Japanese yen is currently trading at a 32-year low against the dollar. Moreover, the recent dovish statements by Bank of Japan’s head figures have added to the downward pressure.

USDJPY has recently received tailwinds from statements by BOJ’s Governor Kazuo Ueda and his deputy Shinichi Ushida. The two reiterated the bank’s reluctance to exit ultra-dovish monetary policies even when it brings to the negative interest rates to an end. Meanwhile, the US Federal Open Market Committee (FOMC) maintains a hawkish stance built on strong economic data and focus on lowering inflation.

Japan’s economy has been contracting for consecutive quarters in recent years and continues to print bearish data. The latest of these is Tuesday’s release of Machine Tool Orders, which showed a decline of -14.1% in January, down from -9.6% in December. Nonetheless, the market seems to have largely ignored the data. The USDJPY pair will, however react to the January US Consumer Price Index figure, which is expected to show a headline inflation rate of 3.4%. The degree of reaction will depend on the margin of change from the consensus forecast.

Elsewhere, Japan is expected to have slipped below Germany and become the world’s fourth economy in 2023. However, the latest survey shows that 70% of business owners expect the economy to return to the growth path in 2024. This may trigger the BOJ to take measures to ease out of its long-running negative interest rate policy.

Technical analysis

Key momentum indicators, the RSI and 9MA favour upside action. The pivot price has been established at 149.20, which will propel the pair to target the first resistance at 149.75. A breach beyond that point will see the bulls target the psychological round figure of 150.00. However, a slip below 149.20 could signal bearishness, with downside action possibly finding support at 148.95. A breach beyond that level could potentially see the pair find a second support at 148.70, invalidating the bullish narrative.