USDJPY Outlook: The Dollar Wins But Pair Remains Within Narrow Margin

Summary:
• The yen has slid from Tuesday’s gains, as sentiment around US GDP release overpowers better-than expected Japan CPI data.

USDJPY has made marginal gains, reversing some of the losses incurred on Tuesday. The pair is up by 0.08% as of 11.30 GMT, trading at 150.64. On Tuesday, the yen made modest gains against the dollar, as the market bought news of a higher-than-expected Japan CPI reading in January. However, the market sentiment currently favours the US dollar ahead of the scheduled release of Q4 2023 GDP reading.

Japan’s January CPI grew to 2.0% year-on-year, beating the consensus forecast figure of 1.9%. Furthermore, inflation remained flat in January, an improvement from 0.1% in December. These figures support views that the Bank of Japan could reverse its long-running negative interest rate policy.

While the CPI release initially supported gains by the yen, the dollar has clawed back ahead of US GDP release. Analysts expect the preliminary release to show a +3.3% growth. Also, two FOMC members, Federal Reserve Bank of Atlanta President Raphael Bostic and Federal Reserve Bank of New York President John Williams hours after the release, potentially injecting new impetus.

Notably, the confidence around the reading is such that the market ignored disappointing dollar-centric macroeconomic data. The February US Consumer Confidence was 106.7, fairing poorer than the projected 114.8. In addition, the January Durable Goods Orders fell by -6.1%, exceeding the projected -4.9%.

The yen will be impacted by the release of Japan’s January industrial production reading later on Wednesday. The reading is projected to come at -6.7%, and a significant swing from this mark could provide fresh impetus for USDJPY.

Technical analysis

The pivot for USDJPY is at 150.50, and the momentum signals upside movement. Bullish control above the pivot could meet resistance at 150.85. However, extended control by the buyers at that point could breach the resistance, with the pair possibly getting rejected at 151.00. Below the pivot point, the bears could build momentum to break the 150.30 support. A break below that point will see them target 150.15.