- Bank of Japan Governor Kazuo Ueda signaled a likely rate hike.
- The US PPI increased by 0.2%, well below estimates of a 0.4% increase.
- Traders are focused on Wednesday’s Consumer Price Index report.
The USD/JPY price analysis shows rising bets for a Bank of Japan rate hike next week, supporting the yen across the board. Meanwhile, the dollar remained weak after data in the previous session revealed softer-than-expected wholesale inflation. At the same time, the greenback paused its rally amid caution ahead of the crucial consumer inflation report.
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On Wednesday, Bank of Japan Governor Kazuo Ueda said the central bank would hike rates if Japan’s economy continued improving. His remarks aligned with his deputy’s, reinforcing bets for a near-term rate hike. Market participants are currently pricing a 70% chance of such a move during next week’s meeting.
Meanwhile, the greenback paused its rally after data on Tuesday revealed softer wholesale inflation in December. The PPI increased by 0.2%, well below estimates of a 0.4% increase. Meanwhile, core inflation did not change during the month. Economists had forecasted a 0.2% increase.
The downbeat figures increased Fed rate cut expectations, hurting the dollar. However, traders are more focused on Wednesday’s Consumer Price Index report. Another downbeat report will increase rate cut bets. On the other hand, an unexpected jump in inflation would lead to a rally in Treasury yields and the dollar.
USD/JPY key events today
- US core CPI m/m
- US CPI m/m
- US CPI y/y
USD/JPY technical price analysis: Price action suggests looming sentiment shift
On the technical side, the USD/JPY price is bouncing lower after finding resistance at the 158.02 key level. It trades below the 30-SMA with the RSI in bearish territory, indicating a bearish bias.
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Bulls are showing weaker momentum after many attempts to make a new high and detach from the SMA. The RSI has made a bearish divergence, and price action shows larger bearish candles. Meanwhile, bullish candles are getting smaller. This is a sign that bears might be ready to take charge.
The price has been trading in a shallow, bullish channel. Therefore, a break below the channel support would show a bearish shift in sentiment. Moreover, the price must break below the 156.03 support to start making lower highs and lows, confirming a downtrend. In this case, USD/JPY would revisit the 154.01 support level.
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