Tokyo CPI Cools, USDJPY Awaits US PCE Next

This week, the USDJPY experienced a slight decline of 0.27%, consolidating after a three-week ascent. In the current session, it has rebounded by 0.07% ahead of the crucial US PCE data release today. On the one hand, a softer-than-expected Tokyo core CPI reading of 1.6% year-on-year (YoY) in January, falling below the BoJ’s 2% target for the first time since May 2022, seemingly undermines the JPY. This could potentially pave the way for a BoJ shift away from its ultra-loose monetary policy in the long run. 

However, Governor Kazuo Ueda’s hawkish comments earlier this week, suggesting that conditions for phasing out stimulus and raising rates might be on the horizon, provide some tailwinds for the safe-haven JPY amid a cautious market mood. Additionally, the recent US GDP data showing a stronger-than-anticipated 3.3% growth in Q4 2023 has investors scaling back expectations for aggressive Fed easing, which could support the USD against the JPY in the short term. 

The upcoming US PCE Price Index release today will be the key driver for the USDJPY pair’s immediate direction. Softer-than-expected inflation readings could reignite bets for a dovish Fed pivot, potentially weakening the USD and boosting the JPY. Conversely, a higher-than-expected PCE reading could fuel expectations for continued Fed hawkishness, strengthening the USD and potentially pushing the USDJPY pair higher. 


The 4-hour chart shows that the USDJPY pair currently hovers around 147.754, trapped in a narrow range between the 23.60% Fibonacci retracement level and the 20-SMA (green line). Both the 50-SMA (blue line) and 100-SMA (orange line) trend upwards, suggesting underlying bullish momentum. 

A sustained push above the 23.60% Fibonacci retracement level and the 20-SMA could trigger a breakout, with initial resistance targets at 148.315 and 148.801. Clearing these levels could pave the way for further gains towards 149.50 and 150.00. 

Failure to hold above the 23.60% Fibonacci retracement level and the 20-SMA could signal a potential bearish reversal. In this scenario, initial support lies at the 50% Fibonacci retracement level of 146.583, followed by the 61.80% Fibonacci retracement level at 146.060. 


USDJPY faces near-term uncertainty ahead of the US PCE data. A positive surprise in the data could strengthen the USD and push USDJPY above 148.315, potentially targeting 148.801 and 149.67. However, a softer-than-expected reading could favour the JPY, sending USDJPY below 146.583 and potentially reaching 146.060.  

Sources: TradingView, Trading Economics, Reuters, Statistics Bureau of Japan, Dow Jones Newswire. 

Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst 

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