Daily Price Outlook
During Thursday’s European session, the USD/JPY currency pair continued its downward trajectory, trading near 154.40. The Japanese yen (JPY) has been performing strongly against most currencies, bolstered by expectations that the Bank of Japan (BoJ) will maintain its policy of interest rate hikes this year.
However, the speculation around Japan’s spring wage negotiations has fueled expectations of continued rate hikes, as wages are expected to rise, driving inflation upward.
Meanwhile, the US Dollar (USD) traded sideways after the Federal Reserve’s (Fed) first monetary policy decision of the year, where it left interest rates unchanged at 4.25%-4.50%, as expected.
Fed Chair Jerome Powell indicated that the central bank would only resume the policy-easing cycle when there is progress toward its 2% inflation target or signs of weakness in the labor market.
US GDP Data and Global Market Sentiment Impact USD/JPY Outlook
On the US side, the US Dollar (USD) has remained under pressure as the Federal Reserve’s cautious stance continues to weigh on market sentiment. While the Fed left interest rates unchanged, traders are awaiting the release of the US fourth-quarter GDP data.
The data is expected to show a slowdown in economic growth, with a forecasted annualized rate of 2.6%, down from 3.1% in Q3 2024. A weaker GDP report could further diminish investor confidence in the USD, keeping the pressure on the USD/JPY pair.
BoJ’s Rate Hike Expectations Keep JPY on the Rise, Weakening USD/JPY
On the JPY front, the Japanese Yen has been benefiting from a positive outlook for the country's economy. Speculation is increasing that the BoJ will continue raising interest rates this year, particularly following expectations for strong wage hikes in Japan’s spring wage negotiations.
These developments are seen as a potential catalyst for higher inflation in Japan, which the BoJ aims to address through tighter monetary policy. As the Yen gains strength, the USD/JPY pair has struggled to maintain upward momentum.
Additionally, BoJ Deputy Governor Himino's comments reinforced the expectation that the central bank would act decisively if economic and inflation trends align.
This has provided further support to the Yen, keeping the USD/JPY pair under pressure, especially after it failed to break above the 155.00 resistance level.
USD/JPY – Technical Analysis
The USD/JPY pair continues to decline, slipping below the 154.952 pivot level, as the yen strengthens amid risk-off sentiment and shifting rate expectations.
The pair remains under pressure as traders weigh U.S. economic data against potential policy shifts from the Bank of Japan (BoJ).
The 50-day EMA at 155.313 is now acting as a dynamic resistance level, reinforcing selling pressure. If USD/JPY fails to reclaim 154.952, further declines toward 153.903 are likely, with the next support levels resting at 153.292 and 152.683.
A decisive break below these levels could accelerate downside momentum, signaling increased yen demand.
On the upside, immediate resistance is at 155.616, followed by 156.318 and 157.022. A break above 155.616 could ease bearish sentiment, but momentum remains weak as long as the pair stays below the 50-day EMA.
From a trading perspective, a sell position below 154.951 aligns with a take profit target at 153.904 and a stop loss at 155.744, reflecting the bearish bias. Unless the U.S. dollar regains strength or the BoJ signals policy shifts, USD/JPY may remain under pressure.
Traders should watch upcoming U.S. inflation data and any policy commentary from Japanese officials for further directional cues.
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