- The USD/JPY is rising due to increased US bond yields and inflation data.
- Higher-than-expected CPI has delayed Fed rate cut expectations.
- Upcoming data, like PPI, may push USD/JPY toward 155.00.
- Are you looking for actionable trade ideas to navigate the current market volatility? Unlock access to InvestingPro’s AI-selected stock winners using this link.
The USD/JPY had already extended its gains for the third day, even before the DXY jumped higher on a worse-than-feared US CPI report. The yen had fallen across the board, in part because of improved risk appetite hurting the appeal of the perceived haven currency while rising US bond yields were also a major factor.
Well, the just-released CPI data has further fuelled the bond yield rally, and this has caused the USD/JPY to break even higher. More inflation data in the form of PPI is due tomorrow and retail sales will be in focus on Friday.
Inflation Hot in January
One thing that is becoming clear is the rising bond yields, which have bounced back ever since Friday’s jobs report and now climbed even higher on the back of the CPI data.
Headline CPI came in at +0.5% MoM, much higher than +0.3% expected, while Core CPI also beat at +0.4% vs. +0.3% eyed. On a year-over-year basis, CPI rose to +3.0% compared to 2.9% expected and last, while core CPI climbed to 3.3% vs. 3.1% expected.
CPI inflation in the US has now risen to its highest level since June 2024.
Yields Surge
Following the CPI report, US 5- to 10-year yields rose at least 10 basis points, with investors pushing back their rate cut expectations from the Fed to December.
The latest inflation report comes hot on the heels of Friday’s monthly jobs report, which showed that wage growth increased by 0.5%. Additionally, the University of Michigan’s inflation expectation survey surged more than expected, reigniting inflation uncertainty.
As a result of hot inflation and wages data, bond yields have risen as investors push out expectations that the Fed will cut interest rates soon. This has caused the US dollar to stage a comeback, especially against low-yielding currencies such as the Japanese yen.
What Else Will Traders Be Watching This Week?
There is more data to come but up next, it is the second day of Fed Chair Jay Powell’s testimony. Yesterday, Powell was always unlikely to say anything dovish, especially ahead of the key US inflation data. Lo and behold, Powell said that they do not need to be in a hurry to adjust policy.
As a result, we saw the USDJPY extend its gains, but now the Fed Chair could sound even more cautious.
Tomorrow, we will also see PPI data and retail sales figures will be released on Friday, making for an eventful week in terms of economic releases. Unless the upcoming data releases come in way below expectations, we could see the USD/JPY climb to 155.00 and potentially higher.
Investors have also been keeping an eye on Trump’s trade war. The latest tariff news on steel and aluminium from Trump have been largely ignored by traders who feel that the US President is using it as a negotiation tactic.
Hence, we have seen stock markets in Germany for example hit repeated all-time highs. Given that the tariffs are set to take effect on March 4 unless a deal is agreed upon before then, the stock markets are not very concerned about this for now. But let’s see if Trump announces any further measures and how that might impact the markets.
USD/JPY technical analysis
Source: TradingView.com
From a technical point of view, the USD/JPY is showing relative strength following a 3-day rally. It has bounced back strongly from around the 151.00 area, where prior resistance-turned-support held and the exchange rate has surged back above the 200-day average of around 152.50/60 area.
The key question now is whether it can hold its ground above the 200-day moving average, which on the evidence of the early price action post CPI, looks to be the case. If it does manage to hold the breakout, this could pave the way for a recovery to extend towards and possibly beyond the 155.00 handle.
Price has already broken the base of the previous week's breakdown at around 153.70-154.00 zone. The 155.00 level is now the most important short-term resistance to watch. On the downside, the first line of support comes in at 153.70, followed by the 152.50/60 area and then 151.00.
***
Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.