USD/JPY stays above 132.00 on Japan GDP, BoJ nominations, US inflation eyed

• USD/JPY bounces off intraday low, reverses pullback from five-week high on Japan data.
• Preliminary readings of Japan’s Q4 GDP rose 0.2% versus 0.5% expected, -0.2% prior.
• Pullback in yields, US Dollar ahead of the key US CPI also weigh on Yen prices.
• Japanese government’s official announcements of BoJ leadership awaited as Kazuo Ueda appears a challenge to YCC.

USD/JPY justifies softer-than-expected Japan growth numbers as it flirts with the intraday low near 132.30 during early Tuesday. Even so, the Yen pair remains indecisive amid the market’s anxiety ahead of the key US Consumer Price Index (CPI) for January, as well as the Japanese government’s public nominations for the Bank of Japan (BoJ) board.

As per Japan’s preliminary readings of the fourth quarter (Q4) Gross Domestic Product (GDP) data, the Asian economy reversed the previous 0.2% contraction with the same quarterly growth figures. However, the GDP Deflator rose to 1.1% versus -0.3% expected and prior during the stated period. Following the data, the USD/JPY pair bounced off its intraday low before reversing to 132.25 by the press time.

Also read: Japan GDP: Japan's economy grew an annualised of just 0.6%, Yen's a touch weaker

While an improvement in Japan's GDP favors the Yen sellers, the fears of hawkish BoJ and a retreat in the US Treasury bond yields ahead of the key US data seem to exert downside pressure on the USD/JPY prices of late.

Earlier on Tuesday, Bloomberg came out with an analysis suggesting further challenges to the Bank of Japan’s (BoJ) easy money policy during the incoming Kazuo Ueda’s reign. It’s worth noting that Ueda previously defended the current monetary policy in his latest public speech. That said, the Japanese government is up for formally announcing their nominations for the BoJ leadership on Tuesday, making Bloomberg’s piece important for the USD/JPY pair traders.

Elsewhere, the US 10-year Treasury bond yields remain depressed at around 3.70% after reversing from a five-week high the previous day. The pullback in yields contrasts with the hawkish Federal Reserve (Fed) talks as Fed Governor Michelle Bowman said that the Federal Reserve will need to continue to raise interest rates in order to get them to a level high enough to bring inflation back down to the central bank's target rate, per Reuters. Before him, Philadelphia Federal Reserve President Patrick Harker pushed back the chatters of a Fed rate cut during 2023. However, the policymaker did mention, “Fed not likely to cut this year but may be able to in 2024 if inflation starts ebbing.”  His comments were mostly in line with the previous weekly statements from Fed Chair Jerome Powell signaling cautious optimism and defending the US Dollar bulls, despite the latest pullback.

It should be observed that the US Dollar Index (DXY) remains pressured towards 103.00 as traders brace for the US CPI amid downbeat expectations from the inflation data, mainly due to the softer prints of the US inflation expectations. The latest 10-year and 5-year breakeven inflation rates from the St. Louis Federal Reserve (FRED) grind near monthly highs, close 2.31% and 2.44% at the latest.

Amid these plays, S&P 500 Futures print mild gains while Japan’s Nikkei 225 rises 0.85% on a day by the press time.

Moving on, the Japanese government announcement and the US CPI for January, expected 6.2% YoY versus 6.5% prior, will be crucial for the USD/JPY traders to watch for clear directions.

Also read: US Consumer Price Index Preview: US Dollar vulnerable to violent crash, every 0.1% in Core CPI matters

Technical analysis

USD/JPY needs decisive break of the 40-pips trading range between the 50-DMA and a five-week-old resistance line, around 132.00 and 132.40, to entertain traders. That said, oscillators are in favor of the bulls.