The USD/JPY exchange rate dropped for five consecutive days, reaching a low of 151.42 on Friday, its lowest level since December 11. It has dropped by over 4.7% from its highest level this year as traders focus on the Federal Reserve and Bank of Japan actions. So, what next for the USD to JPY exchange rate?
US jobs data and inflation report
The USD/JPY exchange rate pulled back after the US published the January nonfarm payroll (NFP) report.
According to the Bureau of Labor Statistics (BLS), the data showed that the economy added 143k jobs in January after creating 307k in the previous month. The figure was lower than the median estimate of 170k.
Another data showed that the unemployment rate dropped for the second consecutive month, moving from 4.1% to 4.0%. This was notable as it was a sign that the rate was moving towards below 4%.
These numbers came a week after the Federal Reserve left interest rates unchanged and signaled that it would hold them steady. Analysts expect the bank to restart cutting rates in the July meeting.
The Fed’s biggest concern is that the US inflation has remained substantially higher for a while. Recent data showed that the headline CPI rose to 2.9% in December, while the core figure softened to 3.2%.
The US will release the consumer inflation data impacting the USD/JPY pair this week. Analysts anticipate that the headline CPI figure will be 0.3%, down from 0.4% in the previous month. It will translate to a YoY figure of 2.9%, much higher than the Fed’s target of 2.0%.
Economists expect the core inflation figure, excluding volatile food and energy prices, to move from 0.2% to 0.3%. It will remain at 3.2% on a YoY basis.
US inflation may remain higher as Donald Trump implements import tariffs. Imports on China have already started attracting a 10% tariff, while Mexico and Canada will attract a 25% levy.
Therefore, the Fed may decide to maintain higher interest rates. Jerome Powell, the Fed Chair will speak this week, and possibly affect the USD/JPY pair.
BoJ rate hikes
The USD/JPY pair has retreated after the Bank of Japan maintained a hawkish stance at its last monetary policy meeting.
Unlike the Fed that is cutting rates, the BoJ hiked interest rates in the last monetary policy meeting. It moved rates from 0.25% to 0.50%, and officials maintained that this trend may continue since inflation remains high.
The most recent economic data showed that the headline Consumer Price Index (CPI) rose from 2.9% in November to 3.6% in December, the highest level since 2023. It has risen in the past two consecutive months.
Economists believe that the BoJ will deliver more hikes later this year, which explains why the USD/JPY pair has slumped.
USD/JPY technical analysis
USDJPY chart by TradingView
The daily chart shows that the USD/JPY exchange rate peaked at 158.86 this year and has now plunged to 152 amid the Fed and BoJ divergence. It has moved below the top of the trading range of the Murrey Math Lines at 151.56.
The USD/JPY pair has also dropped below the 50-day and 100-day Weighted Moving Averages (EMA). These two lines are about to cross each other, which is a bearish confirmation view.
The Relative Strength Index (RSI) and the Percentage Price Oscillator (PPO) have pointed downwards. Therefore, the pair will likely continue falling as sellers target the bottom of the trading range at 148.60 and its lowest swing in December.
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