- Markets are more optimistic that the BoJ will end negative rates in March.
- Most economists expect the Bank of Japan to end negative interest rates in April.
- US job openings fell in January, indicating weakness in the labor market.
The USD/JPI outlook is pointing south due to growing expectations that the Bank of Japan will raise interest rates in March. Markets are optimistic that the conditions are in place for the Bank of Japan to end negative rates at this month’s meeting. In particular, there is a good chance that the upcoming annual wage negotiations will lead to wage increases. As a result, policymakers are more willing to consider raising rates.
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Meanwhile, most economists expect the central bank to end negative interest rates in April. Such a move would finally support the yen, which has weakened due to interest rate differentials. The BoJ remained dovish when most major central banks raised rates to tame inflation. As a result, the Japanese currency has weakened significantly, constantly needing intervention for support. However, the narrative is slowly changing. While other central banks, such as the Fed, are considering tapering, the BoJ is on the verge of starting its own rate hike cycle.
Meanwhile, the dollar weakened on growing confidence that the Fed will cut interest rates. Fed President Jerome Powell was a little coy when he said a rate cut would be appropriate later in the year.
Elsewhere, data from the US revealed a drop in jobs in January, pointing to weakness in the labor market. A weaker labor market reduces the chances that inflation will flare up, allowing the Fed to consider rate cuts.
USD/JPI Key Events Today
- First jobless claims in the US
- Powell’s testimony to Congress
USD/JPI Technical Outlook: Price falls after breakout from consolidation
On the technical side, USD/JPI fell sharply after breaking out of consolidation. As a result, the price reached its targets at the 0.382 and 0.618 Fib retracement levels. The price is now well below the 30-SMA, with the RSI deep in the oversold region. Therefore, the bearish bias is strong.
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However, the price may have to pause after such a steep decline before it continues to fall. A pullback could retest the 30-SMA as resistance before bouncing lower. However, the price is likely to break below the 0.618 Fib soon. In such a case, it could further decline to retest the 146.01 support level.
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