- USD/JPY slides back closer to the weekly low and is pressured by a combination of factors.
- The BoJ review news boosts the JPY and exerts some pressure amid a modest USD downtick.
- Bets for smaller Fed rate hikes continue to weigh on the buck ahead of the key US CPI report.
The USD/JPY pair comes under some renewed selling pressure on Thursday and drops back closer to the weekly low during the Asian session. The Japanese Yen strengthens across the board amid reports that the Bank of Japan (BoJ) will inspect the side effects of ultra-loose monetary policy at its next policy meeting on January 17-18. Further details showed that policymakers may take additional steps to correct distortions in the yield curve. This comes on the back of the BoJ's surprise tweak in December and fuels speculation for an eventual tightening later this year. This, along with a modest US Dollar downtick, acts as a headwind for the major.
The USD continues to be weighed down by growing acceptance that the Federal Reserve will soften its hawkish stance amid signs of easing inflationary pressures. The bets were lifted by last week's US monthly jobs report (NFP), which showed a slowdown in wage growth during December. Adding to this, business activity in the US services sector hit the worst level since 2009 and suggested that the effects of the Fed's large rate hikes in 2022 are being felt in the economy. This reaffirmed market expectations for a less aggressive policy tightening by the Fed and leads to an extension of the recent decline in the US Treasury bond yields.
In fact, the yield in the benchmark 10-year US Treasury note drops to a nearly four-week low and continues to undermine the greenback. That said, a generally positive risk tone, bolstered by the easing of COVID-19 curbs in China, could undermine the safe-haven JPY and limit the downside for the USD/JPY pair. Traders might also prefer to move to the sidelines and wait for the release of the US consumer inflation figures, due later during the early North American session. The crucial US CPI report will influence the Fed's rate-hike path, which, in turn, will drive the USD demand and provide a fresh directional impetus to the major.
Technical Outlook
The USD/JPY pair's inability to gain any meaningful traction and the emergence of fresh selling at higher levels comes on the back of the recent breakdown below the very important 200-day SMA. This, in turn, suggests that the recent downfall might still be far from being over and that the path of least resistance for spot prices is to the downside. Some follow-through selling and a convincing break below the 131.00 round figure will reaffirm the negative outlook and drag the pair towards the 130.60 intermediate support. The downward trajectory could get extended towards the 130.00 psychological mark en route to the monthly swing low, around mid-129.00s.
On the flip side, any meaningful recovery back above the 132.00 mark could attract fresh sellers near the 132.65 area. This, in turn, should cap the USD/JPY pair near the weekly high, around the 132.85-132.90 region, which should now act as a pivotal point for short-term traders. A sustained strength beyond might prompt a short-covering rally and lift spot prices beyond the 133.50 hurdle, allowing bulls to reclaim the 134.00 mark. Some follow-through buying will set the stage for a further near-term appreciating move towards testing last week's swing high, around the 134.75-134.80 region.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
AUD/USD tumbles to breach 0.6500 as poor China's PMI offsets upbeat Aussie data

AUD/USD is seeing intense selling pressure and breaches 0.6500 after the Chinese NBS Manufacturing PMI sank further into contraction in May. Investors shrugged off hot Australian inflation data and strong Construction Work figures amid resurfacing China economic worries.
EUR/USD battles 1.0700 as China worries lift the US Dollar

EUR/USD is testing 1.0700, retreating from near the 1.0740 region in Wednesday's Asian trading. Dismal China's NBS Manufacturing PMI and pre-US debt deal vote anxiety reinstate the US Dollar's safe-haven appeal. US/ German data, Fedspeak and House vote in focus.
Gold: Bear Cross confirmation to threaten 100 DMA support again Premium

Gold price is fading the previous rebound above the $1,950 mark, as the United States Dollar (USD) is seeing a fresh uptick amid a risk-on market profile. Attention now turns toward the House of Representatives vote on the US debt deal.
Top 3 Price Prediction Bitcoin, Ethereum, Ripple: BTC bulls recovery plan targets $30,000 as bears exhaust

Bitcoin price action slows down, allowing bears to doubt their strength. As more time elapses, the chances of bulls taking over control of BTC become more likely. A spillover effect, should buyers make a comeback, would be noticeable in Ethereum and Ripple prices.
Debt ceiling deal keeps dollar locked in devaluation spiral

Fiscal hawks weren't optimistic when Kevin McCarthy was elected Speaker of the U.S. House. The California Republican's track record was dismal when it comes to spending restraint. Nearly 5 months into his term, it is now apparent McCarthy has no intention of holding the line against government expansion.