Usdjpy drops as Japan’s inflation rises and US unemployment claims increase

USDJPY Analysis

Performance after Thursday
Period	Pct	Chg	Momentum
Thursday	-0.32%	-50.199 Pips
Week to-date	-0.2%	-31.3 Pips
January	-0.64%	-100.199 Pips

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Fri 03:00 AM JPY Bank of Japan Short-Term Policy Interest Rate

What happened lately

Japan’s National Consumer Price Index (CPI) inflation rate has shown significant upward momentum in December, increasing to 3.6% from 2.9% in November, as reported by the Statistics Bureau of Japan. This rise marks continued higher price levels, underscored by a 3% increase in the CPI inflation rate excluding fresh food, up from 2.7% the preceding month. Interestingly, another measure, excluding both food and energy, exhibited an adjustment, standing at 3% in December, contrasting with a lower revised figure of 2.4% in November. Economic data also demonstrated mixed tendencies in trade figures for Japan. While the Merchandise Trade Balance improved significantly to 130.9 billion yen from a deficit of 117.6 billion yen in November, the growth in exports diminished to 2.8% from a prior figure of 3.8%. Conversely, imports increased by 1.8%, shifting from a previous negative stance of -3.8%, reflecting potential recovery in domestic demand or price dynamics.

Turning our attention to the U.S., initial unemployment insurance claims for the week ending January 18 rose to 223,000 compared to the previous week’s figure of 217,000, according to the U.S. Department of Labor. This data may imply slight softening in the labor market, although it remains relatively stable and near historic lows.

The combination of these economic indicators from Japan and the U.S. is likely to affect the USDJPY currency pair. The rise in Japan’s inflation suggests mounting pressure on the Bank of Japan to consider policy adjustments, possibly altering interest rates in the upcoming announcement. If such adjustments align with expectations for a tighter monetary policy, the yen could appreciate, putting downward pressure on USDJPY. However, the slight increase in U.S. unemployment claims presents modest headwinds for the U.S. dollar. As a result, the recent drop in USDJPY by 0.32% indicates market anticipation of these broader economic changes, with the potential for further shifts depending on upcoming policy announcements by the Bank of Japan.

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What can we expect from USDJPY today?

USDJPY on Thursday dropped -0.32% to 155.99. Price is below 9-Day EMA while Stochastic is rising.

Updated daily direction for USDJPY looks bearish as the pair posted lower in Thursday trading session.

Looking ahead for the day, immediate support level is at 155.57 (S1) with break below could see further selling pressure towards 155.15 (S2). To the upside, with the current momentum bearish, we prefer to look at breakout of the recent daily high of 156.75 as a potential indicator of buying interest. Failure to break the resistance level would continue to echo bearish sentiment. A close below 155.74 would indicate selling pressure.

For the week to-date, take note that USDJPY is mixed as compared to prior week.

Key levels to watch out: