The Japanese Yen (JPY) continued its steady decline on Friday against a broadly stronger U.S. Dollar (USD), with the USD/JPY pair climbing closer to the mid-149.00s. Japan’s National Consumer Price Index (CPI) data for February, showing a slower-than-expected rise, put additional downward pressure on the Yen. Meanwhile, the U.S. Dollar found support from the Federal Reserve’s forecast for only two rate cuts of 25 basis points (bps) by year-end, reinforcing its strength.
However, meaningful JPY depreciation seems limited as expectations grow that the Bank of Japan (BoJ) will maintain a tightening stance due to robust wage growth. This diverges from the Fed’s expected policy easing, which could cap the USD’s gains and prevent significant losses for the Yen. As a result, investors may need to see additional buying momentum before confirming the USD/JPY pair has bottomed out.
Inflation Data and Wage Growth Impact
Japan’s CPI data showed a 3.7% year-on-year rise in February, slightly lower than January’s 4% increase. Core CPI, excluding fresh food, was up 3%, above the expected 2.9%, but lower than January’s 3.2%. These numbers indicate a slowing inflation trend, which could signal that the BoJ’s monetary policy may not need to tighten as aggressively as some had anticipated.
However, Japan’s spring labor negotiations have resulted in a third consecutive year of wage growth, which is expected to increase consumer spending and inflation, giving the BoJ more room to raise rates if necessary. BoJ Governor Kazuo Ueda emphasized that the central bank’s actions align with Japan’s economic outlook, underscoring that achieving a 2% inflation target remains crucial.
Fed’s Rate Cuts and Geopolitical Tensions
On the flip side, the Federal Reserve has signaled that it will likely implement two 25 bps rate cuts by the end of 2025, amid concerns over economic growth and the potential impact of trade policies. Fed Chairman Jerome Powell also mentioned that tariffs are likely to dampen economic activity, adding further uncertainty to global markets.
Geopolitical tensions, including the ongoing conflict between Russia and Ukraine and the escalation in the Middle East, have also contributed to market volatility. While such developments often lead to a flight to safety, strengthening the Yen, the U.S. Dollar’s upward momentum continues to hold sway.
USD/JPY Technical Outlook
From a technical perspective, if the USD/JPY pair moves above the 149.25-149.30 resistance range, it could target the psychological 150.00 level. A break above 150.15 could trigger a short-covering rally, pushing the pair towards the 150.60 mark and the 151.00 region, with the potential for further gains to the 151.30 level.
On the downside, the immediate support lies around the 148.60-148.55 region. If this support level is broken, the pair could accelerate its decline towards the weekly low of 148.28-148.15, followed by further downside targets at 148.00 and 147.75. A break below this level could pave the way for a deeper decline toward 147.30, eventually heading towards the 147.00 mark, a level last seen in early October.
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