The recent stability of the exchange rate of the US dollar against the Japanese yen USD/JPY is generally expected. The announcement of US inflation figures through the US consumer price index will have a strong reaction to the future of tightening the Fed's policy during the new year 2023. The price of the dollar currency pair against the Japanese yen USD/JPY is stable around the level of 132.50 at the time of writing the analysis, awaiting the most important market event for this week.
Markets and investors will be looking forward to the release of US inflation data on Thursday to boost the tone for risk appetite. American data occupies a prominent position in driving the markets, not only of the dollar pair against the Japanese yen, but of all currencies against the US currency. US inflation data is due at 13:30 GMT and growth is expected on a monthly basis at 0%, on a yearly basis at 6.5%, down from 7.1% in December.
If inflation is less than expected, the rest of the currencies may benefit against the dollar, but a stronger-than-expected figure could strengthen the US dollar, and it should test stronger bullish levels and compensate for its recent losses. However, markets may choose to focus more on core inflation which is expected to come in at 5.7% for December, which would be a further slowdown from the previous reading of 6.0%.
It was the release of US inflation below expectations in November that set the forex markets on fire and led to a sharp decline in the price of the dollar as investors bet that inflation had peaked. More confident that the Fed may soon take a break from the rate hike cycle. This pushed down US bond yields, easing monetary conditions and boosting risk-sensitive assets such as stocks. In general, it was the high yields until 2022 that proved to be a major source of support for the dollar, as it attracted foreign investor flows into US bonds and flooded the stock markets, providing more support for the dollar as a safe haven.
However, analysts expect 2023 to see the dollar return some of its gains as the Fed's dynamic shifts. “The market has returned to fading Fed pessimism by introducing forward cuts this year and putting the US dollar in its place,” he added. That is the peak of inflation and the reopening of China. "Moreover, it's not overly obvious that a positive surprise on core inflation will significantly change the path of the dollar either," he adds.
In contrast, the Bank of Japan recently said it would ease its policy of keeping Japanese bond yields in check, suggesting that one of the world's most influential central banks is finally preparing to move away from a multi-year policy of suppressing interest rates.
Dollar expectations against the Japanese yen today:
- Cautious stability still dominates the performance of the USD/JPY currency pair.
- The bulls' control of the trend will not increase, according to the performance on the daily chart below, without moving above the resistance 135.00.
- On the other hand, breaking the support level 131.30 will be important for control.
- Bears are in the trend, and whatever the results of the US inflation numbers today, I still prefer buying the currency pair from every downward level.
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