- The yen hit a fresh one-year low against the dollar ahead of US inflation data.
- Japan’s wholesale inflation slowed to below 1%.
- The rise in wholesale inflation prompted many Japanese firms to pass on higher costs to households.
As the week kicked off, the USD/JPY outlook strengthened as the yen hit a fresh one-year low against the dollar ahead of US inflation data. Analyst Tony Sycamore from IG suggested that a strong figure from US economic data releases this week could push the dollar/yen pair to the 152 range.
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Meanwhile, Monday’s data from Japan indicated that wholesale inflation slowed to below 1%, marking the first time in just over 2-1/2 years. This suggests that the cost pressures contributing to price increases were decreasing. Moreover, the slowdown aligns with the Bank of Japan’s expectations. Now, the question is whether wage increases and household spending will generate a demand-driven boost in consumer prices.
Notably, an increase in prices prompted the Japanese central bank to raise its inflation forecasts at the October monetary policy meeting. Meanwhile, markets are eager for signs indicating the bank’s potential exit from its ultra-loose monetary policy.
The BOJ has emphasized that the current cost-push inflation will fade. Moreover, it must be replaced by price increases driven more by strong domestic demand. Only then will the bank consider ending ultra-low interest rates.
Governor Kazuo Ueda noted progress toward achieving the bank’s 2% target. Therefore, conditions for exiting the ultra-easy policy are gradually falling into place.
Meanwhile, there was little response to the announcement that Moody’s had downgraded the outlook for the US credit rating to “negative.”
USD/JPY key events today
It might be a silent day ahead for USD/JPY as the calendar shows no significant events from the US or Japan.
USD/JPY technical outlook: RSI hints at a looming pause in the rally.
The USD/JPY price has rallied above the 151.51 key level and is approaching resistance at the 152.01 level. The bullish bias is strong as the price trades well above the 30-SMA. Moreover, the RSI has entered the overbought territory, indicating solid bullish momentum.
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However, at such an extreme level, the RSI shows it might be time for a pause in the rally. It means that bears might emerge at the 152.01 resistance level. Consequently, there might be a retracement to the 151.51 support or lower to the 30-SMA.
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