The Japanese Yen pares intraday gains as the US Dollar strengthens broadly

The Japanese Yen (JPY) has pared some of its intraday gains against the broadly stronger US Dollar (USD), allowing the USD/JPY pair to recover nearly 50 pips from its Asian session low, hovering around the 149.00 level. However, any significant depreciation of the JPY appears limited due to growing market expectations that the Bank of Japan (BoJ) will continue raising interest rates this year.

These expectations were reaffirmed by BoJ Deputy Governor Shinichi Uchida, who stated that underlying inflation is gradually moving toward the central bank's 2% target. This sentiment helped counterbalance the impact of weaker-than-expected Tokyo Consumer Price Index (CPI) data released on Friday, which showed a notable decline in Japan’s inflation figures.

Additionally, risk-off sentiment continues to provide support for the safe-haven JPY. Meanwhile, the anti-risk flow has driven US Treasury bond yields lower, narrowing the US-Japan rate differential, which could further limit downside risks for the JPY. Investors are now looking ahead to the release of the US Personal Consumption Expenditure (PCE) Price Index for further clarity on the Federal Reserve’s interest rate path.

BoJ’s Rate Hike Expectations Offset Weak Tokyo CPI Data

• BoJ Deputy Governor Shinichi Uchida stated that Japan’s inflation is gradually rising toward the central bank’s 2% target, supporting expectations of further rate hikes.
• Japan’s headline CPI in Tokyo slowed to 2.9% YoY in February, down from 3.4% in the previous month.
• Core CPI (excluding fresh food) declined to 2.2% YoY, down from an 11-month high of 2.5% in January.
• A core inflation gauge (excluding fresh food and energy) remained steady at 1.9%, aligning with the BoJ’s key inflation measure.
• Japan’s Industrial Production fell 1.1% MoM in January, marking its third consecutive month of contraction.
• Despite weaker economic data, market sentiment suggests that the BoJ will remain committed to monetary tightening, providing underlying support for the JPY, particularly amid ongoing risk-off market conditions.
• The US Dollar continues to trade near its weekly highs, buoyed by recent economic data pointing to persistent inflationary pressures in the United States.
• The US Gross Domestic Product (GDP) expanded at an annualized rate of 2.3% in Q4 2024, aligning with initial estimates.
• The GDP Price Index rose to 2.4%, exceeding the initial estimate of 2.2%, signaling ongoing price pressures.
• Concerns over US President Donald Trump's economic policies potentially reigniting inflation have further reinforced market expectations that the Federal Reserve will maintain its hawkish stance.
• Kansas City Fed President Jeff Schmid highlighted a rise in consumer inflation expectations, emphasizing the need for the central bank to stay focused on curbing inflation.
• Cleveland Fed President Beth Hammack stated that interest rates are likely to remain on hold, as inflation data remains a growing concern for policymakers.
• Philadelphia Fed President Patrick Harker noted that progress toward the 2% inflation target has slowed, suggesting that the Fed’s current policy stance remains restrictive.
• Investors are now turning their attention to the US PCE Price Index, the Fed’s preferred inflation gauge, which will provide further guidance on the central bank’s interest rate trajectory.

USD/JPY Faces Resistance Near 150.00 as Bearish Consolidation Continues

From a technical perspective, USD/JPY remains trapped within a familiar trading range established at the beginning of the week. Following its decline from the 159.00 level, which marked the year-to-date high in January, the pair’s price action suggests an ongoing bearish consolidation phase. This outlook is reinforced by technical indicators, as oscillators on the daily chart remain in negative territory, yet still distant from oversold conditions. As a result, the path of least resistance for USD/JPY appears to be downward, with further losses likely in the near term.

On the downside, the 149.00 level is currently providing immediate support, just ahead of the 148.60–148.55 zone, which represents a multi-month low reached earlier this week. If selling pressure intensifies, a decisive break below these levels could trigger additional downside momentum, pushing the pair toward 148.00. Beyond that, the next major support levels lie at 147.35–147.30, with a potential drop toward the 147.00 psychological mark.

Conversely, USD/JPY faces initial resistance near 148.80, followed by the critical 150.00 psychological level and the weekly high at 150.30. A sustained breakout above 150.30 could fuel a short-covering rally, propelling the pair toward the 150.90–151.00 resistance zone. Further gains might see USD/JPY testing the 151.45 level, with an extended move toward 152.00. However, strong resistance is expected near 152.40, which coincides with the 200-day Simple Moving Average (SMA)—a key technical indicator that could act as a pivotal point for future price action.