Japanese Yen Soars on BoJ Rate Hike Bets: USD/JPY downtrend deepens, targeting key support levels. Analysing the impact of rising wage expectations and inflation on the JPY.
Chart of the week: USDJPY
Fig 1: USD/JPY medium-term trend as of 7 Feb 2025 (Source: TradingView)
The Japanese yen has been making significant gains in the recent four weeks after several key Bank of Japan (BoJ) officials have sounded confident in the progress of a likely further wage hike for the financial year of 2025, following Japan’s annual spring wage negotiations, which are expected to conclude by the end of March, and also cited steady progress in Japan's inflation trend.
All in all, market participants have started to price in more interest rate hikes from BoJ in the coming months after it raised its key short-term interest rate for the third time by 25 basis points to 0.5% on 24 January.
The JPY has been the strongest outperformer among other major currencies against the US dollar based on a one-month rolling performance as of 7 February where the USD/JPY declined by 3.79% versus only a minor loss of 0.46% inflicted on the US Dollar Index over the same period.
Momentum begets momentum as for the case of USD/JPY, it is likely the reign of bearish momentum.
The daily RSI momentum indicator of the USD/JPY has broken below its former ascending support and has not reached its oversold region, which suggests that price actions of the USD/JPY may see further decline amid the risk of a potential minor corrective rebound to retest the 200-day moving average now acting as a near-term resistance at around 152.90 within a medium-term downtrend phase that may have been be in place since 10 January 2025 high (see Fig 1).
Watch the 154.15 key medium-term pivotal resistance on the USD/JPY with the next medium-term supports coming in at 149.30 and 146.90.
On the other hand, a clearance above 154.15 invalidates the bearish scenario for a potential recovery towards the next medium-term resistance zone at 158.35/80 (also the 10 January 2025 swing high area).
