The Japanese Yen (JPY) continues to strengthen against the US Dollar (USD) during Friday’s Asian session, remaining near a one-month high. Fresh economic data from Japan reinforced expectations of further rate hikes by the Bank of Japan (BoJ), further supporting the Yen’s upward trajectory.
Japanese Economic Data Boosts Yen Sentiment
Tokyo’s Consumer Price Index (CPI) surged in January, signaling persistent inflation. Additionally, Industrial Production posted unexpected growth in December, while Retail Sales exceeded expectations. These factors collectively increase the likelihood of a BoJ rate hike, keeping JPY bulls in control.
Meanwhile, geopolitical risks also enhance the appeal of the safe-haven Yen, alongside a subdued USD, keeping the USD/JPY pair under pressure near the 154.00 level during the Asian session. However, a positive market sentiment and rebounding US Treasury yields could limit further gains for the JPY.
Cautious Optimism Amid Positive Risk Tone and Rising US Bond Yields
- The Tokyo CPI rose from 3.0% to 3.4% YoY in January, the highest level since April 2023.
- Core CPI, excluding fresh food, climbed from 2.4% in December to 2.5% in January, marking an 11-month high.
- BoJ Deputy Governor Ryozo Himino emphasized that real interest rates remain negative and hinted at potential rate hikes if economic conditions align.
- Russian Tu-95 bombers conducted a routine flight over the Sea of Okhotsk and the Sea of Japan, adding to geopolitical concerns.
- US GDP growth slowed to 2.3% in Q4 from 3.1% in Q3, missing expectations of 2.6%.
- US President Donald Trump renewed threats of imposing 25% tariffs on Mexico and Canada and warned of 100% tariffs if BRICS nations challenge USD dominance.
- Japan’s Prime Minister Shigeru Ishiba assured continued investments in the US and advocated for a stable energy supply.
- Concerns over protectionist US policies, coupled with the Federal Reserve’s hawkish stance, have bolstered US Treasury yields, supporting the USD.
Key Technical Levels for USD/JPY
The USD/JPY pair remains vulnerable to further downside, especially after breaking below a short-term ascending trend channel. If the pair falls below the monthly low of 153.70, bearish momentum could accelerate, leading to further declines towards the 153.00 level, with the next key support at 152.40 and 152.00 (aligned with the 100-day Simple Moving Average).
On the upside, recovery attempts above the mid-154.00s may face resistance at the psychological 155.00 mark. A decisive break above this level could trigger short-covering, pushing the pair towards the 155.40-155.45 zone, followed by the 156.00 mark. The next critical resistance lies at 156.75, a breach of which may confirm a bullish reversal.
Outlook: Yen Bulls Hold the Upper Hand
With the BoJ’s potential rate hike on the horizon and persistent inflation, the JPY remains well-supported against the USD. However, market sentiment, US bond yields, and geopolitical developments will play a crucial role in determining the next move for USD/JPY. Traders will be closely watching the upcoming US Personal Consumption Expenditure (PCE) Price Index for further clues on the Fed’s policy trajectory.
