- USD/JPY hits a four-day high on Thursday, though there was no follow-up.
- The appearance of some buying around the USD acts as a tailwind for the pair.
- The BoJ is reported to be raising inflation forecasts, benefiting the yen and limiting the pair’s rise.
The pair USD/JPY reverses an intraday slide towards the 131.70-131.65 zone and hits a four-day high during the first half of the European session on Thursday. However, the pair finds it difficult to capitalize on the move and remains below the 133.00 levelwarranting caution before positioning for an extension of this week’s rally from the lowest level since June 2022.
The appearance of some buying around the US dollar turns out to be a key factor lending some support to the USD/JPY pair. Having said that, the prospects for lower rate hikes by the Federal Reserve keep US Treasury yields under pressure near three-week lows and hold back traders from taking aggressively bullish positions around the USD. In fact, the minutes of the December FOMC policy meeting, released on Wednesday, showed that officials unanimously supported raising borrowing costs at a slower pace.
This, along with the news that the Bank of Japan plans to raise its inflation forecasts, supports the Japanese yen and helps cap the USD/JPY pair. According to Reuters, the upgrade would underscore the central bank’s conviction that robust domestic demand will keep inflation sustainably around its 2% target in the coming years. This, in turn, fuels speculation that the BoJ will phase out its ultra-loose policy when Governor Haruhiko Kuroda’s second five-year term ends in April.
The aforementioned fundamental factors suggest that the path of least resistance for the USD/JPY pair is to the downside and any significant rally is likely to be sold. That being said, investors would prefer to stay on the sidelines ahead of the release of the US Monthly Employment Report (NFP), due out on Friday. Meanwhile, US macro data on Thursday, with the ADP Private Sector Jobs report and initial weekly jobless claims, could lead to short-term trading opportunities.
USD/JPY technical levels
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
