USD/JPY FUNDAMENTAL BACKDROP
The YoY inflation rate fell to 3.3% in February 2023 from January’s 41-year high of 4.3% while the MoM print indicated declines of 0.6% in February, the first fall since October 2021. The key, however, was the so-called so-called core-core CPI (excluding fresh food and energy) accelerated further to 3.5% in February (vs 3.2 % in January). The continued rise in the CPI (excluding fresh food and energy) has reignited hope of a pivot from the BoJ when incoming Governor Ueda takes the hot seat on April 9.
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In my view I do not see an immediate pivot in policy from incoming Governor Ueda however further tweaks to the yield control policy cannot be ruled out. According to reports PM Kishida’s administration views rigid monetary easing as problematic with the BoJ apparently monitoring the impact of Decembers widening of the control range until current Governor Kuroda’s term ends.
Japan Inflation YoY
Source: Trading Economics, Ministry of Internal Affairs and Communication
The US Dollar has struggled since the FOMC meeting further weighing on USDJPY prices with the DXY hitting a low around the 102.000 handle yesterday. Later in the day we do have US Durable goods data, a positive print could provide the greenback with some respite. Whether such a move will have any sustainability however remains up in the air.
From a technical perspective, USD/JPY has been on a steady decline since the Wednesday FOMC meeting. We saw resistance provided by the 50-day MA around the 132.60 mark which remains the most recent lower swing high.
We have printed a fresh low tapping into the psychological 130.000 mark with retracement a possibility. However, the path of least resistance appears to be further downside with any rallies providing potential shorts a better risk-to-reward opportunity. USDJPY remains bearish below the 132.60 handle.