USD/JPY signal: forecast as the uptrend continues, CPI data ahead

The USD/JPY exchange rate has been in a strong uptrend this year as the US dollar index (DXY) and Japanese stocks surged. The pair rose to a high of 148 on Thursday, its highest point since 1st December. It has surged by more than 5% from the lowest point this year.

The USD/JPY pair has bounced back in the past few days as investors focused on the recent economic numbers from the US and their implications on the market. Data released earlier this month showed that the economy created over 200k while the unemployment rate remained at 3.7%. Wage growth was strong as it rose by over 4% during the month.

Last week, a separate report by the Bureau of Labor Statistics (BLS) revealed that inflation held steady in December. The headline Consumer Price Index (CPI) rose from 3.2% in November to 3.4% in December while the core CPI rose by 3.8%. These numbers were much higher than the Federal Reserve target of 2.0%.

Retail sales numbers released on Wednesday revealed that spending continued rising in December even as inflation steadied. Therefore, these numbers mean that the Federal Reserve will likely continue holding rates steady at its 22-year high in the first half of the year. After the meeting in December, most analysts started to predict a March rate cut.

The change of expectation explains why the US dollar index (DXY) has jumped to $103.35 while US bond yields are sitting above 4%. Similarly, American equities have slumped, with the Dow Jones and Nasdaq 100 index falling from their highest points this year.

The USD to JPY price has also jumped because of the ongoing geopolitical tensions in the Middle East. On Thursday, the Pakistan army hit Iran while the US military hit Houthi rebels again. In most cases, the US dollar tends to rise when there are geopolitical risks.

The biggest catalyst for the USD/JPY in 2024 will be the Bank of Japan (BoJ), which is expected to change its tune on rates. Most economists expect that the BoJ will decide to hike interest rates later this year, exiting negative rates that have existed for many years. 

The BoJ is the only central bank that has maintained negative rates globally even as inflation in the country has risen. When the statistics agency publishes its decision on Friday, most economists expect the data to show that the core CPI rose by 2.3% in December after rising by 2.5% in the previous month. The BoJ has an inflation target of 2.0%.

The Japanese yen has struggled even as demand for stocks has surged, with the Nikkei 225 and Topix indices sitting at the highest point in more than three decades. 

USD/JPY chart by TradingView

The daily chart shows that the USD to JPY exchange rate has been in a strong bullish trend in the past few days. It has recently flipped the key resistance at 145.08 (June 30th high) into a support. It has also crossed the 50-day moving average while the Relative Strength Index (RSI) and the Stochastic Oscillator are pointing upwards.

Therefore, the pair will likely continue rising as buyers target the key resistance at 151.87, the highest point on November 17th.

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