Key Points:
- Market awaits Japanese CPI figures.
- A lack of persistent inflation likely to continue for the pair.
- Expect further greenback appreciation in the coming days.
The USD/JPY continued to rally strongly last week amid an improvement in the U.S. Jobless figures as well as renewed rhetoric around a rate hike by the Federal Reserve. In fact, Janet Yellen provided testimony suggesting that rate hikes are all but assured and this buoyed the pair strongly. However, the market is likely looking towards the Japanese inflation figures which could prove to be decisive for the pair’s near term trend. Subsequently, we take a look at what is potentially to come for the embattled yen.
The USD/JPY continued to charge higher through most of last week as the pair reacted to a stronger range of US economic indicators as well as testimony from Fed Chair Yellen suggesting that a hike to the FFR was all but assured in December. This level of rhetoric saw a sharp sentiment swing towards the greenback which was exacerbated by a negative JPY GDP Price Index result of -0.1%. Subsequently, the pair was strongly buoyed and the bulls grasped the opportunity to push the pair as high as 110.74 prior to the end of the week.
The week ahead will largely focus upon the US Markit Flash Manufacturing PMI and Japanese CPI figures. The US Flash PMI is forecast to return a result around the 53.4 mark which would largely match the trend exhibited in some of the broader US economic figures of late. In contrast, the Japanese inflation data will very likely confirm a negative figure with forecasts putting the result around the 0.00% mark. Subsequently, there are plenty of fundamental reasons to see further gains for the pair over the next 7 days.
From a technical perspective, the USD/JPY’s recent rally confers a bullish bias for the week ahead. Price action is likely to remain buoyant as it heads towards the 61.8% retracement level at 115.58 in the medium term. Whether this move summarily breaks the long term downtrend will remain to be seen but the initial appearance is one of a resurgent USD. Support is currently in place for the pair at 107.61, 106.11, and 104.01. Resistance exists on the upside at 111.11, 111.87, and 114.11.
Ultimately, Japan has a significant problem on its hands from a fundamental economic perspective. A lack of persistent inflationary pressures is clearly present despite one of the largest tranches of QE ever to be released. Subsequently, the coming CPI figures are likely to prove relatively negative which will only pressure the yen further in the coming week. Therefore, don’t expect the rampant USD/JPY pair to slide to the short side any time soon.