The Japanese Yen (JPY) attracted buyers on Thursday following the release of stronger-than-expected Producer Price Index (PPI) data, reinforcing expectations of further rate hikes by the Bank of Japan (BoJ). However, the initial market reaction was short-lived as concerns over US President Donald Trump’s tariffs on steel and aluminum imports, along with potential retaliatory measures, weighed on sentiment. This allowed the USD/JPY pair to hold above the 154.00 level during the Asian session, staying near its one-week high.
Meanwhile, Federal Reserve (Fed) Chair Jerome Powell signaled that policymakers are in no hurry to cut interest rates. Additionally, hotter-than-expected US consumer inflation data released on Wednesday suggested limited room for rate reductions this year. As a result, US Treasury bond yields surged, widening the US-Japan yield differential, which in turn capped the upside for the lower-yielding JPY. However, the US Dollar (USD) struggled to attract fresh buyers, preventing aggressive bullish bets on USD/JPY.
Japanese Yen Faces Headwinds Despite Strong PPI Data
Japan’s PPI rose 0.3% month-over-month in January and climbed 4.2% year-over-year, signaling persistent inflationary pressures. Along with recent wage growth data, this strengthens the case for additional BoJ rate hikes. BoJ Governor Kazuo Ueda and Deputy Governor Shinichi Himino have also hinted at further policy tightening if economic conditions align with projections.
Despite this, JPY bulls remain cautious due to fears that Trump’s tariff policies could destabilize Japan’s economy. Meanwhile, the US Consumer Price Index (CPI) report for January showed inflation accelerating to 3.0% year-over-year from 2.9% in December, with core CPI rising to 3.3% from 3.2%. The data reinforced expectations that the Fed will maintain its hawkish stance. Powell reiterated that monetary policy must remain restrictive as inflation remains above the central bank’s 2% target.
US bond yields reacted strongly, with the 10-year Treasury yield registering its largest single-day rise since December, further widening the US-Japan interest rate gap. Investors now await the US Producer Price Index (PPI) report and weekly jobless claims for further direction.
USD/JPY Technical Outlook
From a technical perspective, USD/JPY’s breakout above the 152.75 resistance and subsequent climb beyond the 38.2% Fibonacci retracement level of its January-February decline support a bullish outlook. However, daily chart oscillators have yet to fully confirm this momentum.
A decisive break above the 154.75-154.80 region, which aligns with the 50% retracement level, could pave the way for further gains. The pair may then target the psychological 155.00 mark, followed by the 155.45-155.50 resistance zone and the 156.00 area, which corresponds to the 61.8% Fibonacci level.
On the downside, immediate support lies at 154.00, followed by the 153.75-153.70 zone. A sustained drop below these levels could push USD/JPY toward the 153.00 mark, aligning with the 100-day Simple Moving Average (SMA). Further losses may see the pair testing the 152.75 region, which includes the 200-day SMA and the 23.6% Fibonacci level, serving as a crucial pivot point. A confirmed break below this level could expose sub-151.00 levels, with interim support near 151.40.
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