USDJPY Heads Up After Forecast-Beating US Inflation Data

Summary:
• US inflation rose above expectations in February, supporting Fed hawkishness. Also, the absence of data from Japan supports gains by USDJPY

USDJPY has regained upside momentum following the release of February US inflation data on Tuesday. The pair had recently touched the 146 mark, including a monthly low of 146.47 on Friday. The market had been bullish on the yen following a forecast-beating GDP reading for the last quarter of 2023, but is likely to keep rising, in the absence of high-impact data in the next 24 hours.

US Core CPI (excluding food and energy) remained unchanged in February, matching the January figure of 0.4%, and beating the forecast figure of 0.3%. Similarly, headline inflation rose by 0.1% year-on-year in February to beat the forecast figure of 3.1%.  This means that inflation still remains stubbornly above the Fed’s preferred 2%, making a strong case for hawkish monetary policy.

Bank of Japan Governor Kazuo Ueda stated earlier on Tuesday that while optimism remains over Japan’s economic recovery, underlying weakness in consumer consumption is a course for concern. Furthermore, economists are convinced that the BoJ will announce an end to its negative interest rate policy in next week’s monetary policy meeting. The country continues to struggle with deflation, and an end to the negative interest rates would inject new volatility into the market. This sentiment is supported by a conviction that the country’s employers could be preparing to hike wages in the near term. Meanwhile, the dollar’s ascension in the near term will be supported by US Treasury yields, which have returned above 4.0% as of this writing.

Technical analysis

The USDJPY trading pair has its pivot at 146.95, and a move above that point will favour control by the buyers. Upside momentum will meet resistance at 147.75. However, a continuation of bullish control could see USDJPY break above that mark and attempt a move on 148.00. On the flipside, the sellers will be in control if resistance remains at 146.95. That could build a momentum to break the 146.45 support, beyond which continued control could see the next support come at 146.00.