USD/JPY rises to daily highs and approaches the 130.00 level

• USD/JPY is gaining strength and is approaching the 130.00 level.
• Yields in the US and Japan advance along with the rebound in the dollar.
• The inflation rate in Japan extended the upward trend in December.

Further selling pressure around the Japanese yen lifts USD/JPY to fresh daily highs near the key 130.00 barrier during the European session on Friday.

USD/JPY Focuses on Dollar and Yields

USD/JPY maintains choppy price action on Friday, leaving behind the previous daily pullback and regaining composure near the 130.00 level in a context in which the dollar manages to stage a decent rebound and yields move higher.

In this sense, the 10-year yields in the US are close to the 3.45% area, while their Japanese counterparts leave behind two daily setbacks and recover 0.40% so far, as the bearish effects of the maintenance of the BoJ’s monetary policy (January 18) continue to disappear.

As for the data from Japan, the headline inflation rate and the core inflation rate rose 4% in Decemberwhile the inflation rate excluding food and energy increased by 3% over the previous year.

What can we expect around the JPY?

The negative streak of 3 months in the USD/JPY has found some initial support in the 127.20 region so far (January 16).

Meanwhile, the pair remains attentive to developments in the Fed’s normalization process and to the conflicting views of the markets (which continue to favor a near-term pivot) and the aggressive narrative of the FOMC governors, who advocate a quick move to the rate hike (5%-5.25%).

Market participants are expected to closely monitor any hint from the BoJ indicating a possible exit strategy from the current ultra-loose policy and/or other Yield Curve Control (YCC) adjustment.

USD/JPY levels to watch

At the time of writing, the pair USD/JPY is gaining 0.88% on the day, trading at 129.53. The next bullish barrier is in 131.57 (Jan 18 high), followed by 134.77 (maximum of January 6) and 136.69 (200-day SMA). To the downside, a break below 127.21 (Jan 16 low) would aim for 126.36 (minimum of May 24, 2022) and 121.27 (March 31, 2022 minimum).