The Japanese yen (JPY) continued its intraday decline against the US dollar (USD) during Friday’s Asian trading session, with the USD/JPY pair approaching the mid-149.00s. The yen faced pressure following the release of Japan’s National Consumer Price Index (CPI), which indicated a slowdown in February. Meanwhile, the US dollar found support as the Federal Reserve (Fed) maintained its forecast for only two 25 basis point (bps) rate cuts by the end of the year.
BoJ-Fed Policy Divergence in Focus
Despite the yen’s weakness, significant depreciation appears unlikely due to expectations that the Bank of Japan (BoJ) will continue raising interest rates. Strong wage growth in Japan could fuel consumer spending and inflation, giving the BoJ room for further policy tightening. In contrast, the Fed’s outlook suggests potential easing, which could limit USD gains and help stabilize the yen.
Japan’s Inflation and Wage Growth Trends
Fresh data showed that Japan’s national CPI rose 3.7% year-over-year in February, down from 4% in January. The core CPI, excluding fresh food, increased 3%, slightly above the expected 2.9% but lower than January’s 3.2% reading. Meanwhile, results from Japan’s annual spring labor negotiations indicated that companies largely agreed to union demands for significant wage increases for the third consecutive year. This trend is expected to bolster consumer spending and inflationary pressures, reinforcing the BoJ’s case for further rate hikes.
BoJ Governor Kazuo Ueda reaffirmed the central bank’s stance, stating that policy adjustments will be made as needed to maintain long-term credibility and achieve a stable 2% inflation target.
Geopolitical Risks and Market Reactions
Heightened geopolitical tensions also played a role in market sentiment. Ukraine escalated attacks on Russian military infrastructure, striking the Engels airbase, while Russia launched a significant drone offensive. Additionally, Israel resumed airstrikes on Gaza, breaking a ceasefire with Hamas. In response, Hamas launched rockets at Israel, increasing concerns over further instability in the Middle East. These developments could bolster demand for the safe-haven yen.
USD/JPY Technical Outlook
The US dollar’s modest recovery from its multi-month low lent some support to the USD/JPY pair. However, the policy divergence between the BoJ and the Fed is expected to limit any significant USD gains.
From a technical perspective, a breakout above the 149.25-149.30 resistance level could push USD/JPY toward the key 150.00 psychological mark. Continued momentum beyond 150.15 may trigger a short-covering rally, with potential targets at 150.60 and 151.30.
On the downside, support is seen at the 148.60-148.55 region. A break below this level could accelerate losses toward the weekly low of 148.28-148.15, with further downside potential extending to 147.00.
Market participants remain cautious as they await further economic signals, with attention focused on upcoming US data releases and central bank policy developments.
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