This morning, news about inflation in Japan was published. It did not bring any surprises — inflation in Japan is gradually weakening as expected. Core CPI in annual terms: actual = 2.3%, forecast = 2.5%, a month ago = 2.6%, a year ago = 3.0%.
We also note that the official position is aimed at preventing further weakening of the yen, as the USD/JPY price has risen more than 7% since the beginning of 2024 — very close to a 32-year high. Thus, Japanese Deputy Finance Minister for Economic Affairs Masato Kanda yesterday warned that the current weakening of the yen does not correspond to fundamental indicators and is clearly caused by speculation. He concluded that the authorities would take appropriate measures against excessive fluctuations.
However, neither verbal interventions nor the publication of Japanese Core CPI values led to strong fluctuations in the USD/JPY market. Why so?
From a fundamental analysis point of view, market participants are keeping their focus on the publication of Core PCE Price Index values in the US, as well as the Fed Chairman’s speech — both events are scheduled for Friday (at 15:30 and 18:30 GMT+3, respectively).
From a technical analysis point of view, the market stabilization is quite natural, since the USD/JPY price today is near the median line of the ascending channel (shown in blue), which describes the trajectory of 2024. The market seems to be cooling down after the RSI indicated it was overbought on March 20th.
It is the events of Friday that can bring the market out of the current equilibrium state (despite the fact that Friday is a day off in many countries, volatility can be high).
In case of bearish activity, the USD/JPY price may be supported by a zone consisting of:
→ the lower line of the border of the ascending channel;
→ psychological level of 150 yen per US dollar;
→ support from a local minimum of about 150.30 yen per US dollar.
If the market goes out of balance towards the upper boundary of the channel, market sentiment will likely be influenced by expectations of the Bank of Japan’s reaction to an excessively weak yen — and this may not only be verbal interventions.
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