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Japanese Yen at Crossroads as US Dollar Sinks on Fed Comments. Where to for USD/JPY?

Japanese Yen at Crossroads as US Dollar Sinks on Fed Comments. Where to for USD/JPY?

Daniel McCarthy, Strategist


Japanese Yen, USD/JPY, US Dollar, Crude Oil, Gold - Talking Points

  • The Japanese Yen faces challenges after inflation data
  • The US Dollar slid lower elsewhere and the BoJ has its work cut out
  • The Fed and the rate is driving markets, Will Thursday US CPI move USD/JPY?
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The Japanese Yen is little changed against the greenback so far this week despite the broader DXY (USD) index making a seven-month low on Monday. The Asian session has been fairly muted for currencies so far today.

Japanese inflation appears to be accelerating after the headline Tokyo CPI hit a 40-year high at 4.0% year-on-year to the end of December. This was in line with forecasts, but core CPI was also 4.0% for the same period, above the 3.8% anticipated and 3.6% prior.

USD/JPY was little changed on the news, but the Bank of Japan’s ability to maintain a loose monetary policy setting may come under closer scrutiny.

The Presidents of the San Francisco and Atlanta Federal Reserve Banks, Mary Daly and Raphael respectively, both made comments yesterday that they see the Fed funds target rate going above 5% and staying there for ‘a long time.

This is higher than what the futures and swaps markets are currently pricing in. The commentary also appeared to open the way for a 25 basis-point (bp) hike at the February Federal Open Market Committee (FOMC) meeting.

US CPI on Thursday is shaping up as a crucial data point for markets with Fed speakers nominating it as vital to their decision at the Federal Open Market Committee (FOMC) meeting.

A Bloomberg survey of economists is anticipating 6.7% year-on-year to the end of 2023.

Fed Chair Jerome Powell will be speaking later today and his comments with be scrutinised for clues on monetary policy going forward.

Wall Street had a mixed cash session with the Dow Jones and S&P 500 indices down 0.34% and 0.08% respectively while the Nasdaq was up 0.63%. Futures markets are indicating a soft opening there at the time of going to print.

Base metals have gained on the prospect of China resuming higher industrial production levels as the world’s second-largest economy re-opens. Iron ore, aluminium, copper and nickel have all posted solid gains.

It is being reported that BHP has resumed selling coal to China. The Aussie Dollar has maintained lofty levels as it continues to trade near a 4-month high above 69 US cents. The other commodity-linked currencies such as the Kiwi and Canadian Dollar are also enjoying similar trading conditions

Crude oil has eased a touch so far today with the WTI futures contract near US$ 76.40 bbl while the Brent contract is around US$ 79.25 bbl. Gold is steady, close to US$ 1,870 an ounce.

The focus for today will be Fed Chair Powell’s comments. Other economic events can be viewed on the calendar here.

How to Trade USD/JPY
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USD/JPY tried to break the topside of a descending trend channel, but it has since fallen back inside it. The rally was also unable to hold above the 21-day simple moving average (SMA).

Resistance could be at the breakpoints and prior peaks in the 134.50 134.80 area. On the downside, support might be at the breakpoints and previous lows at 131.35, 131.25, 130.57, 130.40 and 129.50.


Chart created in TradingView

--- Written by Daniel McCarthy, Strategist for

Please contact Daniel via @DanMcCathyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.