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USD/JPY rallied and consolidated above the 150.00 threshold on Friday, rebounding from the slight dip in the previous trading session. This uptick was fueled by rising U.S. Treasury yields following higher-than-expected U.S. producer price index figures, which echoed the hot CPI report from earlier in the week.
By way of context, headline PPI clocked in at 0.9% y-o-y, one-tenth of a percentage point above estimates. Similarly, the core gauge surprised on the upside, reaching 2.0% y-o-y compared to the anticipated 1.6%, indicating a potential reacceleration in wholesale inflation’s underlying trend.
US PPI DATA
Source: DailyFX Economic Calendar
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Limited progress on disinflation has led traders to temper their expectations for easing measures for the year, decreasing the likelihood of the Fed commencing its rate-cutting cycle at its May or June meeting. The hawkish reassessment of the central bank’s policy outlook has bolstered the greenback in recent weeks, as illustrated in the accompanying chart.
2024 FED FUNDS FUTURES – IMPLIED RATES BY MONTH
Source: TradingView
Source: CME Group
With price pressure persistently elevated throughout the economy, the Fed will be reluctant to start lowering borrowing costs anytime soon. In fact, policymakers might choose to postpone their first move until the latter half of 2024 to exercise caution. This scenario could result in higher U.S. yields in the short term, a favorable outcome for USD/JPY.
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| Change in | Longs | Shorts | OI |
| Daily | 9% | -4% | -1% |
| Weekly | 12% | -2% | 1% |
USD/JPY TECHNICAL ANALYSIS
USD/JPY climbed on Friday, consolidating above the 150.00 handle, but failing to regain its week’s high reached on Tuesday. Though the pair remains firmly entrenched in a solid uptrend, the exchange rate is approaching levels that could trigger FX intervention by the Japanese authorities to support the yen. For this reason, USD/JPY may struggle to maintain its bullish momentum for an extended period.
Focusing on possible scenarios, if USD/JPY deviates from its upward trajectory and turns lower, initial support appears around 150.00, followed by 148.90. From here onwards, additional losses could usher in a move towards 147.40.
On the flip side, if the bulls test the limits in defiance of possible currency intervention and propel USD/JPY higher, resistance emerges at 150.85. Further gains beyond this point might shift attention toward last year’s high located around the psychological 152.00 mark.
USD/JPY TECHNICAL CHART
