- Data revealed that Tokyo’s core CPI increased by 2.2% in November.
- Market participants are pricing a 57% chance of a BoJ rate hike in December.
- The dollar was frail on Friday amid the Thanksgiving holiday.
The USD/JPY outlook shows the yen nears a six-week high after hotter-than-expected Tokyo inflation figures. At the same time, the dollar remained fragile with the ongoing Thanksgiving holiday.
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The yen rallied on Friday and was heading for a 3% gain this week as markets raised the likelihood of a Bank of Japan rate hike in December. Data revealed that Tokyo’s core CPI increased by 2.2% in November, above forecasts of 2.1%. Moreover, it was a big increase from the previous month when inflation rose by 1.8%. The surge in price pressures brightened the outlook for the yen as the BoJ will be more willing to hike interest rates.
Consequently, market participants are pricing a 57% chance of a rate hike in December. The yen has suffered since Trump won the US election. Initially, Japan’s currency had recovered at the prospect of an aggressive Fed rate cutting cycle. However, that outlook has shifted significantly, with markets now pricing a gradual pace next year. Therefore, there is more pressure on the Bank of Japan to do something to support its currency.
On the other hand, the dollar was frail on Friday amid the Thanksgiving holiday. At the same time, traders are more convinced the Fed will cut rates in December after inflation figures on Wednesday came in line with expectations. The next major report will show the state of the labor market, further shaping the outlook for Fed rate cuts.
USD/JPY key events today
Market participants do not expect any key reports from Japan or the US. Therefore, traders will keep absorbing Japan’s inflation figures.
USD/JPY technical outlook: 150.02 support looks vulnerable
On the technical side, the USD/JPY price has dipped below the 150.02 support before pulling back above the level. The price trades 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 the price retested the 151.74 level as resistance. They are now facing the 150.02 support level. A break below this level will continue the downtrend with a new low. However, the price might pull back to retest the 30-SMA before making new lows.
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