- The data showed Tokyo’s core CPI rose 2.2% in November.
- Market participants estimate a 57% chance of a BoJ rate hike in December.
- The dollar was weak on Friday amid the Thanksgiving holiday.
The USD/JPI outlook shows the yen nearing a six-week high after higher-than-expected inflation data in Tokyo. At the same time, the dollar remained fragile with the ongoing Thanksgiving holiday.
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The yen strengthened on Friday and was on course for a 3% gain this week as markets raised the likelihood of a December interest rate hike by the Bank of Japan. The data showed that Tokyo’s core CPI rose 2.2% in November, above forecasts of 2.1%. Moreover, it was a big increase compared to the previous month when inflation rose by 1.8%. The rise in price pressures has brightened the outlook for the yen as the BoJ will be more willing to raise interest rates.
Accordingly, market participants are pricing in a 57% chance of a rate hike in December. The yen has suffered since Trump won the US election. Initially, the Japanese currency rallied on the prospect of an aggressive Fed rate cut cycle. However, that outlook has changed significantly, and markets are now moving at a gradual price pace. So the pressure is on for the Bank of Japan to do something to support its currency.
On the other hand, the dollar was weak on Friday amid the Thanksgiving holiday. At the same time, traders are more confident that the Fed will cut rates in December after Wednesday’s inflation data came in line with expectations. The next major report will show the state of the labor market, further shaping the outlook for a Fed rate cut.
USD/JPI Key Events Today
Market participants are not expecting any key reports from Japan or the US. Therefore, traders will continue to absorb Japanese inflation data.
USD/JPI technical outlook: 150.02 support looks vulnerable
From the technical side, USD/JPY the price dropped below the 150.02 support before pulling back above the level. The price is trading well below the 30-SMA, with the RSI in the oversold region, indicating a strong bearish bias.
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Bears made a sharp decline after price retested the 151.74 level as resistance. They are now facing the support level of 150.02. A break below this level will continue the downtrend with a new low. However, price could pull back to retest the 30-SMA before making new lows.
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