Yen strengthens on Tokyo CPI Data, testing USD/JPY resistance
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The Japanese Yen (JPY) gains ground against the US Dollar (USD) after Tokyo CPI inflation data reinforced expectations of a January rate hike by the Bank of Japan (BoJ). USD/JPY pulls back from recent highs but retains a bullish trend as markets weigh BoJ tightening against the Fed's tempered rate-cut outlook for 2025.
Tokyo CPI Fuels BoJ Rate Hike Expectations
Headline CPI rose to 3.0% YoY in December, up from 2.6% in November
CPI Excluding Fresh Food and Energy climbed to 2.4% YoY, compared to 2.2% the previous month
CPI Excluding Fresh Food increased to 2.4% YoY, slightly below the expected 2.5% but still higher than November’s 2.2%
The stronger inflation data supports the case for BoJ tightening, with policymakers highlighting the need for sustained wage growth to align with inflationary trends. BoJ Governor Kazuo Ueda reiterated that economic conditions may soon enable Japan to achieve its 2% inflation target sustainably.
Fed’s Hawkish Pause Limits USD Downside
The US Dollar Index (DXY) remains steady at 108.10, reflecting tempered rate-cut expectations from the Federal Reserve.
The Fed reduced its 2025 rate-cut projection to two cuts from four during its December meeting
Moderate US PCE inflation data suggests the Fed will maintain its cautious stance
US Treasury yields remain elevated, with the 10-year yield at 4.57% and the 2-year yield at 4.32%
USD/JPY Technical Analysis
Resistance Levels
158.08 is the immediate resistance, representing the monthly high reached on Thursday
A breakout above 158.08 could push the pair toward the upper boundary of the ascending channel, near 160.30
Support Levels
156.48, the 9-day Exponential Moving Average (EMA), aligns with the channel’s lower boundary
155.00, a psychological level, offers deeper support in case of a corrective move
Momentum Indicators
The 14-day RSI is just below 70, indicating a strong bullish trend
An RSI breakout above 70 may signal overbought conditions and trigger a potential downward correction
Outlook
BoJ Monetary Policy: Tokyo CPI data strengthens the likelihood of a January rate hike, providing near-term support for the JPY Fed Outlook: The Fed's cautious stance limits USD upside, though fewer rate cuts in 2025 provide underlying support Geopolitical Factors: Japan’s Finance Minister reiterated readiness to intervene in FX markets, curbing excessive JPY movements
USD/JPY is likely to remain range-bound between 156.48 and 158.08 in the near term. A breakout above 158.08 may drive further gains, while a drop below 156.48 could indicate the beginning of a corrective phase. As year-end liquidity thins, volatility may increase, requiring close monitoring of technical levels.
Tokyo CPI Fuels BoJ Rate Hike Expectations
Headline CPI rose to 3.0% YoY in December, up from 2.6% in November
CPI Excluding Fresh Food and Energy climbed to 2.4% YoY, compared to 2.2% the previous month
CPI Excluding Fresh Food increased to 2.4% YoY, slightly below the expected 2.5% but still higher than November’s 2.2%
The stronger inflation data supports the case for BoJ tightening, with policymakers highlighting the need for sustained wage growth to align with inflationary trends. BoJ Governor Kazuo Ueda reiterated that economic conditions may soon enable Japan to achieve its 2% inflation target sustainably.
Fed’s Hawkish Pause Limits USD Downside
The US Dollar Index (DXY) remains steady at 108.10, reflecting tempered rate-cut expectations from the Federal Reserve.
The Fed reduced its 2025 rate-cut projection to two cuts from four during its December meeting
Moderate US PCE inflation data suggests the Fed will maintain its cautious stance
US Treasury yields remain elevated, with the 10-year yield at 4.57% and the 2-year yield at 4.32%
USD/JPY Technical Analysis
Resistance Levels
158.08 is the immediate resistance, representing the monthly high reached on Thursday
A breakout above 158.08 could push the pair toward the upper boundary of the ascending channel, near 160.30
Support Levels
156.48, the 9-day Exponential Moving Average (EMA), aligns with the channel’s lower boundary
155.00, a psychological level, offers deeper support in case of a corrective move
Momentum Indicators
The 14-day RSI is just below 70, indicating a strong bullish trend
An RSI breakout above 70 may signal overbought conditions and trigger a potential downward correction
Outlook
BoJ Monetary Policy: Tokyo CPI data strengthens the likelihood of a January rate hike, providing near-term support for the JPY Fed Outlook: The Fed's cautious stance limits USD upside, though fewer rate cuts in 2025 provide underlying support Geopolitical Factors: Japan’s Finance Minister reiterated readiness to intervene in FX markets, curbing excessive JPY movements
USD/JPY is likely to remain range-bound between 156.48 and 158.08 in the near term. A breakout above 158.08 may drive further gains, while a drop below 156.48 could indicate the beginning of a corrective phase. As year-end liquidity thins, volatility may increase, requiring close monitoring of technical levels.