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  • Japan’s industrial activity decreased for a third consecutive month.
  • Many still anticipate a hawkish turn this year from the BOJ.
  • The yen’s depreciation era is quickly coming to an end.

Today’s USD/JPY outlook is slightly bullish. A company survey released Tuesday showed Japan’s industrial activity decreased for a third consecutive month in January as export difficulties persisted amid a deteriorating global outlook.

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The seasonally adjusted figure for the au Jibun Bank flash Japan manufacturing purchasing managers’ index (PMI) in January was 48.9, the same as the previous month’s final reading.

The weak factory activity dims policymakers’ hopes that crucial pay negotiations in the next months will alleviate the consumer squeeze from 41-year high inflation and support the shaky post-pandemic recovery.

The index continued to decline for a third consecutive month, remaining below the 50-line separating contraction from expansion after December’s fastest decline in 26 months.

In the weeks leading up to the Bank of Japan’s policy review last week, mounting expectations for the end of stimulus caused the dollar-yen pair to slide to a low of 127.215, the lowest level since May. However, the dollar received some relief as the central bank stood its ground and maintained the ultra-loose policy.

However, many still anticipate a hawkish turn this year from the BOJ as decision-makers continue to make adjustments to their strategies to prolong the usefulness of the yield curve control (YCC) mechanism.

It’s only a matter of time – and likely months rather than quarters – before the BOJ blows the death toll on the YCC policy, according to NAB’s Attrill. He anticipates a drop in the dollar-yen to 125 by the end of March. The yen’s depreciation era is quickly coming to an end.

USD/JPY key events today

Investors are not expecting any key economic releases from the United States or Japan. The pair might therefore consolidate.

USD/JPY technical outlook: Bulls pause at the 130.82 resistance

USD/JPY outlook
USD/JPY outlook

The 4-hour chart shows USD/JPY pulling back from 130.82, a strong resistance level. The price is also trading above the 30-SMA with the RSI above 50, a sign that bulls are holding the reins. Bulls have paused after reaching the 130.82 resistance level, allowing bears to return.

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The price must break above this resistance for the bullish trend to continue. However, we might see the price retesting the 30-SMA before this happens. A break below the SMA would see bears taking over.

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