The USD/JPY currency pair has experienced a retreat following a peak around 158.00, marking a significant five-month high. The pullback has been driven by stronger-than-expected inflation figures released from Japan and a prevailing risk-off sentiment in the markets, which has favored the lower-yielding Japanese Yen. Amidst this environment, the impact of the Bank of Japan’s recent monetary stance also plays a crucial role, as the central bank maintained its short-term rate target, sparking speculation about possible rate hikes in early 2025.
Reported inflation data from Japan revealed that the National Consumer Price Index (CPI) jumped to 2.9% year-on-year in November, surpassing the previous figure of 2.3%. Furthermore, core inflation measures, which exclude fresh food, also outperformed expectations, suggesting a persistent inflation trend that could compel the Bank of Japan to consider adjustments to interest rates. This backdrop supports bullish sentiment towards the Japanese Yen, which has further pressured the USD/JPY pair.
Contributing to these dynamics, the US House of Representatives’ failure to pass a spending bill has raised concerns about a potential government shutdown, amplifying geopolitical risks. These developments have prompted a flight to safe-haven assets, causing slight declines in U.S. Treasury yields from their recent peaks, thereby limiting the dollar’s rally toward a two-year high. Although the Federal Reserve’s hawkish stance provides support for the USD, it remains in a delicate balance with current market conditions.
Looking ahead, the upcoming release of the US Personal Consumption Expenditure Price Index is anticipated to influence the currency pair significantly. This critical inflation indicator has the potential to steer the USD/JPY trade direction. Technically, the market’s recent price action suggests that while profit-taking is occurring amid overbought conditions, the bullish bias remains intact. A sustained move above recent highs could open pathways toward further upside, while any substantial declines would likely find support around 156.00 and potentially test lower levels at 155.50 and 155.00. Conversely, resistance is seen near 157.50 and 158.00, where a breakout could signal additional bullish momentum.
