USD/JPY Price Analysis: Tokyo’s Inflation Hits New 40-Year High

• Core consumer prices in Tokyo increased faster than anticipated in December.

• The Bank of Japan (BOJ) may modify its yield curve management strategy.

• Investors are awaiting a speech from Fed Chair Powell.

Today’s USD/JPY price analysis is bearish. Core consumer prices in Japan’s capital, which serve as a leading indicator of national trends, increased faster than anticipated in December by 4.0% from a year earlier. This represents an increase in inflationary pressure over the central bank’s 2% objective for the seventh consecutive month.

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The increase, which was the quickest in forty years, will probably support market views that the Bank of Japan (BOJ) may modify its yield curve management strategy to wind down its enormous stimulus program gradually.

According to official figures released on Tuesday, the increase in the Tokyo core consumer price index (CPI), which includes fuel but excludes fresh food, was higher than the 3.8% median market prediction and the 3.6% increase recorded in November.

Inflation in Tokyo last spiked faster in April 1982, when the core CPI increased by 4.2% over the previous year.

The Tokyo core-core CPI index, excluding gasoline and fresh food, was up 2.7% year over year in December, building on the 2.5% annual increase reported in November.

The increase in the Tokyo CPI increases the likelihood that December’s national consumer inflation rate will have exceeded the BOJ’s 2% target.

The BOJ will probably raise its inflation predictions at a rate review next week, reiterating its confidence that strong domestic demand will sustainably support inflation in the range of its 2% objective in the years to come.

USD/JPY key events today

Investors will scrutinize a speech from Fed Chair Jerome Powell expected later in the day. The speech will likely give clues on the future of US interest rates.

USD/JPY technical price analysis: Bears lose steam as the price approaches 131.01

The 4-hour chart shows USD/JPY pushing higher after breaking below the 30-SMA. This comes after bulls found resistance at the 134.50 level. Bears pushed off this level with a strong bearish candle going on to break below the 30-SMA.

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However, the bearish move has weakened below the SMA as it approaches the 131.01 support level. This might just be a short pause before bears break below the support. The bulls will return if the level holds strong. This might see the price retesting the 134.50 resistance.

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