- The Japanese circle climbs up to two months’ height against the USD in the middle of a Bozillat heating bed.
- The withdrawal JGB will be at the JPY limit and will bounce back the Sub-149.00 level with USD/JPY support.
- The advent of fresh USD sales stops a meaningful recovery for couples.
The Japanese Yen (JPY) continues to strengthen against the US Dollar (USD), reaching its highest level since early December during the Asian session on Monday. This upward momentum is driven by Japan’s solid Consumer Price Index (CPI) data and the robust Q4 Gross Domestic Product (GDP) growth report from last week. These factors reinforce speculation that the Bank of Japan (BoJ) may pursue a more aggressive approach to interest rate hikes than previously anticipated. Additionally, sustained wage growth is expected to boost consumer spending, further supporting a hawkish outlook for the BoJ.
Investor concerns over US trade policies, particularly the uncertainty surrounding former President Donald Trump’s proposed tariffs, are also enhancing the JPY’s appeal as a safe-haven asset. At the same time, fresh selling pressure on the USD has kept the USD/JPY pair hovering near the 149.00 level. However, BoJ Governor Kazuo Ueda has signaled a willingness to increase government bond purchases if long-term interest rates rise too quickly, leading to a pullback in Japanese government bond (JGB) yields, which may limit additional gains for the JPY.
Japanese Yen Strengthens as BoJ Rate Hike Speculation Grows
- Data released on Friday showed that Japan’s core inflation touched a 19-month high in January and reinforced expectations that the Bank of Japan will keep raising interest rates.
- BoJ Governor Kazuo Ueda warned on Friday that the central bank could increase bond buying if abnormal market moves trigger a sharp rise in the government bond yields.
- The yield on the benchmark Japanese government bond (JGB) retreats further from its highest level since November 2009 set last week and caps gains for the Japanese Yen.
- A disappointing sales forecast from Walmart raised doubts about US consumer health and drags the US Dollar to over a two-month low during the Asian session on Monday.
- The flash S&P Global US Composite PMI dropped to 50.4 in February, from 52.7 in January, pointing to a weaker expansion in overall business activity across the private sector.
- Separately, the University of Michigan reported that its US Consumer Sentiment Index dropped more than expected, from 71.7 previous to 64.7 in February, or a 15-month low.
- Moreover, households saw inflation over the next year surging to 4.3% — the highest since November 2023 — and running at 3.5% — the highest since 1995 – over the next five years.
- Federal Reserve officials remain wary of future interest rate cuts amid sticky inflation and the uncertainty over US President Donald Trump’s tariff plans and protectionist policies.
USD/JPY Bears Dominate as Pair Trades Below 151.00 Support Level
From a technical standpoint, any upward movement in USD/JPY is expected to face strong resistance near the 150.00 psychological level. If buyers push the pair higher, it could test last Friday’s swing high around 150.70-150.75, with further gains targeting the 150.90-151.00 support-turned-resistance zone. A decisive break above this level could trigger short-covering, propelling prices beyond the 151.40 intermediate barrier and potentially towards 152.00. However, upside momentum may struggle to sustain beyond 152.65, where the critical 200-day Simple Moving Average (SMA) is positioned.
On the downside, initial support lies near 149.00, followed by the Asian session low around 148.85. Further weakness could expose the 148.65 level, aligning with the December 2024 low. A failure to hold these support levels could intensify selling pressure, driving the pair towards 148.00. If bearish momentum persists, the next significant support emerges near 147.45, with a deeper decline possibly extending to 147.00.
