USD/JPY Bulls Target a Return to 136 and More on Fed Jitters

It has been a busy morning for the USD/JPY. Inflation figures for January drew interest early in the Asian session, with incoming Bank of Japan Governor Kazuo Ueda also in the spotlight.

The inflation figures complicated matters for the Bank of Japan this morning. In January, Japan’s annual inflation rate accelerated from 4.0% to 4.3%, with core inflation up from 4.0% to 4.2%, a four-decade high.

However, the numbers had a muted impact on the Yen. Incoming Bank of Japan Governor Kazuo Ueda eased fears of a shift in BoJ monetary policy, delivering morning support. Ueda couldn’t have timed his early comments any better.

Earlier this week, Bank of Japan board member Naoki Tamura spoke of the risks of an inflation overshoot. Tamura reportedly talked about the timing for monetary policy normalization, saying,

“We’ll take into account economic, price, and wage developments at the time.”

Tamura also discussed the effects of extended periods of ultra-low interest rates on innovation and productivity while acknowledging the need to maintain the current accommodative policy stance.

USD/JPY Price Action

At the time of writing, the USD/JPY was up 0.68% to 135.604. A mixed morning saw the USD/JPY fall to an early low of 134.054 before rallying to a high of 135.680. The USD/JPY broke through the First Major Resistance Level (R1) at 135.205.

Technical Indicators

The USD/JPY needs to avoid R1 and the 134.843 pivot to retarget the Second Major Resistance Level (R2) at 135.723 and 136. A move through the morning high of 135.680 would signal a bullish US session. However, the USD/JPY would need Fed chatter and the US stats to support a breakout session.

In the case of an extended rally, the bulls will likely test resistance at 136 but fall short of the Third Major Resistance Level (R3) at 136.603.

A fall through R1 and the pivot would bring the First Major Support Level (S1) at 134.345 into play. However, barring a data-fueled sell-off, the USD/JPY pair should avoid sub-134.000 and the Second Major Support Level (S2) at 133.963. The Third Major Support Level (S3) sits at 133.083.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bullish signal. The USD/JPY sits above the 50-day EMA (134.129). The 50-day EMA pulled further away from the 100-day EMA, with the 100-day EMA widening from the 200-day EMA, delivering bullish signals.

A hold above S1 (134.325) and the 50-day EMA (134.129) would support a breakout from R2 (135.723) to target 136. However, a fall through S1 (134.325) and the 50-day EMA (134.129) would give the bears a run at S2 (133.963). A fall through the 50-day EMA would send a bearish signal.

The US Session

It is a busy day on the US economic calendar. Personal income, spending, and inflation will be in focus. An unexpected rise in the Core PCE Price Index would fuel bets of a more hawkish Fed. Economists forecast the Core PCE Price Index to rise by 4.3% year-over-year in January. The Index was up 4.4% in December.

Later in the session, consumer sentiment and Fed chatter will also draw interest. FOMC member Loretta Mester will deliver a post-stats speech.