Japanese Yen strengthens as hawkish BoJ expectations offset softer Tokyo CPI print

The Japanese Yen regains positive traction amid rising bets for more BoJ rate hikes this year. 

The JPY bulls seem unaffected by the softer-than-expected Tokyo CPI released this Friday.

Subdued USD demand also exerts pressure on USD/JPY as the focus shifts to the US PCE data. 

The Japanese Yen (JPY) attracted fresh buyers during the Asian session on Friday following Bank of Japan (BoJ) Deputy Governor Shinichi Uchida's hawkish remarks, saying that the underlying inflation rate is gradually rising toward the 2% target. Uchida's comments reaffirm bets that the BoJ will continue raising interest rates this year, which helps offset softer-than-expected Tokyo Consumer Price Index (CPI) print and provides a modest lift to the JPY. Apart from this, the risk-off impulse is seen as another factor that benefits the JPY's relative safe-haven status. 

Meanwhile, the anti-risk flow triggers a fresh leg down in the US Treasury bond yields. The resultant narrowing of the US-Japan rate differential contributes to driving flows toward the lower-yielding JPY. This, along with subdued US Dollar (USD) price action, drags the USD/JPY pair back below mid-149.00s.

 Traders, however, seem reluctant to place aggressive directional bets and opt to move to the sidelines ahead of the release of the US Personal Consumption Expenditure (PCE) Price Index, which will play a key role in influencing the USD price dynamics. 

Japanese Yen bulls retain control amid hawkish BoJ expectations, ahead of US PCE Price Index

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• Bank of Japan Deputy Governor Shinichi Uchida said this Friday that Japan's inflation rate is gradually rising towards the central bank's 2% target as the economy sustains a moderate recovery path.

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• The Statistics Bureau of Japan reported that the headline Consumer Price Index (CPI) in Tokyo – Japan's capital city – decelerated from 3.4% in the previous month to the 2.9% YoY rate in February. 

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• Meanwhile, core CPI – which excludes volatile fresh food prices – eased more than expected, from an 11-month high of 2.5% touched in January to the 2.2% YoY rate during the reported month. 

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• Furthermore, a core gauge that excludes both fresh food and energy prices, and is watched as a gauge of underlying inflation by the BoJ, came in at 1.9%, matching the previous month's reading. 

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• Separately, Japan's Industrial Production fell by 1.1% MoM in January. This follows a 0.2% decrease in the previous month and marks the third consecutive month of decline in industrial output.

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• Investors, however, seem convinced that the BoJ will hike interest rates further, which, along with the risk-off mood, boosts the safe-haven Japanese Yen during the Asian session on Friday.

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• The US Dollar stands firm near the weekly top in the wake of Thursday's data, showing that inflationary pressures continue to rise and backing the case for the Federal Reserve to hold steady. 

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• The second reading of the US Gross Domestic Product showed that the economy expanded by a 2.3% annualized pace during the final quarter of 2024, matching the original estimate. 

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• Additional details of the report published by the US Bureau of Economic Analysis revealed that the GDP Price Index rose 2.4% compared to the initial estimate of 2.2%. 

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• This comes on top of worries that US President Donald Trump's policies would reignite inflation and put additional pressure on the Federal Reserve to stick to its hawkish stance. 

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• Kansas City Fed President Jeff Schmid said that recent surveys indicate a rise in consumer inflation expectations and that the central bank must stay focused on fully containing price pressures.

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• Cleveland Fed President Beth Hammack noted on Thursday that interest rates are likely on hold for the time being as inflation data starts to pose a growing problem for central policymakers.

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• Philadelphia Fed President Patrick Harker noted that progress toward the 2% inflation target has slowed and that the policy rate remains restrictive to continue putting downward pressure on inflation.

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• Investors now look forward to the release of the US Personal Consumption Expenditure (PCE) Price Index for cues about the Fed's rate-cut path, which will drive the buck and the USD/JPY pair. 

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USD/JPY seems vulnerable to weakening below 149.00 and retesting multi-month lows

From a technical perspective, spot prices remain confined in a familiar range held since the beginning of this week. Against the backdrop of the recent decline from the vicinity of the 159.00 mark, or the year-to-date high touched in January, the range-bound price action might still be categorized as a bearish consolidation phase. The negative outlook is reinforced by the fact that oscillators on the daily chart are holding deep in negative territory and are still away from being in the oversold zone. This, in turn, suggests that the path of least resistance for the USD/JPY pair is to the downside and supports prospects for deeper losses.

In the meanwhile, the 149.00 round figure now seems to protect the immediate downside ahead of the 148.60-148.55 region, or the multi-month low touched on Tuesday. Some follow-through selling will be seen as a fresh trigger for bearish traders and drag the USD/JPY pair to the 148.00 mark en route to the next relevant support near the 147.35-147.30 area and the 147.00 round figure.

On the flip side, the 148.80 region, followed by the 150.00 psychological mark and the weekly high, around the 150.30 area, might continue to act as an immediate hurdle. A sustained strength beyond the latter, however, could trigger a short-covering rally and lift the USD/JPY pair further towards the 150.90-151.00 horizontal support breakpoint, now turned strong barrier. The momentum could extend further towards the 151.45 region en route to the 152.00 mark, though it is more likely to remain capped near the 152.40 zone. The latter represents the very important 200-day Simple Moving Average (SMA) and should act as a key pivotal point.