USD/JPY Fundamental Daily Forecast – BOJ May Be Considering Raising Inflation Forecasts in January

The Dollar/Yen is edging lower on Tuesday as investors awaited a slew of U.S. economic data this week along with minutes of the last Federal Reserve meeting that will shed light on the Central Bank’s thinking around interest rates and inflation.

At 05:52 GMT, the USD/JPY is trading 129.893, down 0.779 or -0.60%. Last Friday, the Invesco CurrencyShares Japanese Yen Trust ETF (FXY) settled at $71.08, up $0.93 or +1.33%.

After delivering four consecutive 75 basis points hikes, the U.S. Central Bank raised interest rates by 50 basis points last month. The minutes of the December meeting is due to be released on Wednesday, with investors looking for cues on what path is likely to take in 2023.

BOJ May Hike Inflation Forecasts

Helping to pressure the USD/JPY is speculation the Bank of Japan (BOJ) may hike its inflation forecasts. This move could be a precursor to a rate hike later this year.

Nikkei reported on Saturday that the BOJ was considering raising its inflation forecasts in January to show price growth close to its 2% target in fiscal 2023 and 2024.

Technical Outlook is Bearish

The main trend is down according to the daily swing chart. The downtrend was reaffirmed earlier today when sellers took out the August 2 main bottom at 130.412. A trade through 138.173 will change the main trend to up.

The nearest resistance is the old main bottom at 130.412, followed by the minor pivot at 132.009.

The nearest support is the May 24 main bottom at 126.362.

Short-Term Forecast

The key event driving the USD/JPY lower is the news that the BOJ may raise its inflation forecast. This is helping to fuel bullish speculation that the central bank is looking to tweak its ultra-loose monetary easing policy. In December, the BOJ jolted the markets by widening its 10-year yield cap range.

This news combined with a bearish chart pattern could trigger an acceleration to the downside since the next major target level is the May 24 main bottom at 126.362.