Investing.com -- The yen has stood firm against recent dollar strength as the sell off in markets sparked bids into the safe-haven currency, but should U.S. inflation data later this week surprise to the upside, this resilience is unlikely to survive, strategies from BofA Global Research said in a recent note.
"If US CPI surprises to the upside this week, upward pressure for USDJPY spot is likely to resume, due to the pair's high sensitivity to CPI surprises," the strategists said.
The Japanese yen has remained resilient against the dollar's recent broad-based rally, supported by its status as a risk-off hedge amid equity pullbacks and the already elevated USDJPY spot level, this could change with the upcoming U.S. Consumer Price Index, or CPI, report, they added.
BofA's expects core CPI print, which strips out food and energy, of 0.3% month-over-month, slightly above the 0.2% consensus. The CPI is data are slated for release on Wednesday.
The bank's trend model shows a bullish continuation signal for the USDJPY spot uptrend, suggesting further upside potential for the pair. Still, a downside CPI surprise and a hawkish speech from the Bank of Japan's deputy governor Ryozo Himino this week are risks to the bullish call on USD/JPY, the strategists said.
Himino is expected to deliver a speech Tuesday just weeks before the BoJ meeting on Jan. 23-24.