Fresh inflation data in Japan and GDP for Q4 2023 in the US were released yesterday.
Japan's inflation fell below 2% for the first time in more than a year and a half, a sharper-than-forecast slowdown that may cause the Bank of Japan to be cautious about the timing of a widely expected rate hike in coming months.
Consumer prices rose by 1.6% in January, compared to an increase of 2.1% in December. This indicator turned out to be the weakest since March 2022.
The latest data is likely to complicate the inflation picture for the central bank as it believes this is the best time to end the world's last negative interest rate. Although one month’s data hardly derail it from an anticipated course of policy normalization, the unexpectedly sharp slowdown could strengthen the case for more evidence of steady price growth ahead of the first rate hike since 2007 and any further rate hikes.
Ueda has shown determination to end negative rates, and today's figures suggest he will make the move in April, said Toru Suehiro, chief economist at Daiwa Securities. But there is a risk of taking that step too soon. Thus, the BOJ is likely to maintain a cautious outlook and keep easing conditions intact after ending the negative rate.
The central bank governor's statements following this week's decision strengthened the view among economists and investors that the BOJ is preparing to end the negative rate in March or April. Ueda said that even after the rate hike, monetary policy will remain very accommodative to the economy and the bank will avoid policy discontinuities.
These observations combined with the recent data suggest that the BOJ is likely to be in no rush to raise rates again after its first hike, until it sees more evidence that a positive price cycle has emerged.
The US GDP (quarter-on-quarter) showed a significant rise of 3.3% against a forecast of 2.0%. By the end of the year, the US economy proved strong, and this should create conditions for the strengthening of the US currency.
But if one looks at yesterday's movement of USDJPY, it is clear that this news did not affect the market, there was no growth, and the pair rolled back to the average prices of the current week. So, market participants do not see any reasons for USDJPY strengthening, and any new data, indicating a possible growth, are not rated highly. Therefore, the USDJPY downtrend is not losing its strength this year.
The overall recommendation is to sell USDJPY with the target at 145.45.
A Stop-loss could be set at the level of 150.80.
This content is for informational purposes only and is not intended to be investing advice.
