- At the end of last week's trading, the USD/JPY pair retreated from its highest levels in the past 7 weeks at around 148.80 to trade at 148.10 at the time of writing the analysis.
- Technically, the lowest level for the pair today was 147.73. However, the pair continues to trade within an upward channel and the Japanese yen is waiting for the Bank of Japan's policy announcement this week.
According to the economic analysis, the USD/JPY pair is trading in reaction to the results of the latest data. On Friday, the Japanese Nikkei Leading Index for November recorded a change of -0.7% (monthly) compared to a change of -0.2% in the previous update. On Thursday, the National Consumer Price Index (excluding fresh food) for December matched the expected change of 2.3% (on an annual basis), down from 2.5% in the previous month. The overall National Consumer Price Index for this period grew by 2.6% compared to a growth rate of 2.8% in the previous period, while the National Consumer Price Index (excluding food and energy) rose by 3.7% compared to 3.8% previously.
In the United States, the preliminary Michigan Consumer Sentiment Index for January exceeded the expected reading of 70 with a reading of 78.8. The preliminary five-year University of Michigan consumer inflation expectations for this period fell to 2.8% compared to the previous rate of 2.9%. On the other hand, the change in the number of existing home sales for December fell by 1% compared to an increase of 0.8% in the previous period. On Thursday last week, the initial U.S. jobless claims for the week ending January 12 exceeded the expected number of 207,000 with a much lower figure of 187,000.
In general, the potential moderation of U.S. economic growth in the fourth quarter ended a period of strong activity during the last six months of 2023, which boosted expectations that growth will remain healthy. As a result, economists expect the government's initial reading of GDP - the total output of goods and services produced - this week to show an annual increase of 2%, according to the median estimate in a Bloomberg survey. Therefore, this would follow a 4.9% advance in the third quarter and represent the strongest consecutive quarters of growth since 2021.
Concurrently, inflationary pressures have become less pronounced. A day after the GDP figures were released on Thursday. The Personal Income and Government Spending report shows that the Fed's preferred measure of core US inflation rose 3% in the year to December, in what would be the 11th straight month of declining price growth Annually.
Meanwhile, slowing inflation has opened the door for US central bankers to cut interest rates this year, although many policymakers are reluctant to commit to such a move as early as March. While the US Federal Reserve wants to guard against a return of inflation acceleration, further easing of price pressures threatens to make policy more restrictive. Currently, the inflation-adjusted federal funds rate stands at its highest level since 2007, when the economy slid into recession.
In contrast, The Bank of Japan meets amid speculation about a possible first interest rate hike since 2007. None of the economists surveyed by Bloomberg expect a move this time, as authorities are still assessing the impact of the New Year's Day earthquake in the country's northwest. Instead, the focus will be on how Bank Governor Kazuo Ueda describes progress towards a positive cycle in wages and prices and any other signs that prices will rise in the spring. Moreover, Japan will have trade statistics next Wednesday that could show a rebound in exports in December, which could return the economy to growth in the fourth quarter and consumer inflation in Tokyo by the end of the week.
USD/JPY Technical Analysis and Expectations Today:
A decline in the USD/JPY price last Friday pushed the currency pair closer to the 100-hour moving average line. However, it seems that the currency pair still has a lot of room to rise before reaching the oversold levels of the RSI 14-hour. In the near term, and according to the performance on the hourly chart, it appears that the USD/JPY currency pair is trading within an ascending channel formation. Recently, the 14-hour RSI continues to fluctuate centrally, leaving room for further upward moves. Therefore, the bulls will look to extend current gains towards 148.60 or higher to 149.13 resistance. On the other hand, the bears will look to make profits at around 147.62 or lower at the 147.08 support.
In the long term, and according to the performance on the daily chart, it appears that the USD/JPY pair is trading within an upward channel. Also, the 14-day RSI appears to support a long-term bullish bias as it approaches overbought levels. Therefore, the bulls will be looking for a continuation of the current rally towards 150.67 or higher to the 153.38 resistance. On the other hand, the bears will target long-term profits at around 145.63 or lower at the 142.78 support.
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