The USD/JPY pair continues its downward trend, reaching a new low for the year following hawkish comments from Bank of Japan’s Junko Nagakawa. This decline is further fueled by a softer risk tone and a weakening USD, pushing the pair below the 141.00 mark for the first time since December 2023.
Nagakawa’s indication of potential interest rate hikes aligning with the central bank’s economic forecasts, combined with Governor Kazuo Ueda’s hawkish outlook, has solidified expectations of increased borrowing costs in 2024. This contrasts sharply with market expectations of a policy-easing cycle by the Federal Reserve, leading to unwinding of JPY carry trades and a pullback in the USD.
Investor nervousness ahead of the upcoming US Consumer Price Index (CPI) report has also contributed to the JPY’s safe-haven status, exacerbating the bearish pressure on the USD/JPY pair. Traders are now awaiting the CPI release before making further moves, with cooling inflation potentially leading to aggressive Fed easing and further USD depreciation.
Technically, the pair faces key support at the 140.70 area, with a break likely extending the downtrend towards the December 2023 swing low around 140.25. On the upside, resistance is expected near 142.00, with a breakout potentially triggering a rally towards 143.00 and beyond.
USD/JPY 4-hour chart
Analysis
The USD/JPY pair’s downward movement is driven by hawkish BoJ remarks and contrasting Fed expectations, with the upcoming CPI report holding significant influence over market sentiment. A potential shift in inflation could impact future Fed policy decisions, affecting both the USD and JPY. Traders should monitor key support and resistance levels for potential trading opportunities as the pair navigates through uncertain market conditions.