USD/JPY leaves 130.00 behind as upbeat Tokyo CPI pleases BoJ hawks ahead of Fed’s preferred inflation

• USD/JPY takes offers to refresh intraday low, fades bounce off weekly bottom.
• Firmer prints of Tokyo CPI for January renews hawkish concerns over BoJ and weigh on Yen prices.
• Mixed concerns surrounding Fed’s next move, hopes of BoJ’s hawkish turn also please USD/JPY bears.
• Fed’s preferred inflation gauge eyed for clear directions ahead of next week’s FOMC.

USD/JPY renews its intraday low to 129.75 as Japan inflation data renews hawkish bias over the Bank of Japan (BoJ) during early Friday. It’s worth noting that the US Dollar’s lack of ability to extend the previous day’s rebound, as well as the cautious mood ahead of the key inflation precursor tracked by the Federal Reserve (Fed), also weigh on the Yen pair.

That said, Tokyo Consumer Price Index (CPI) matches 4.4% YoY forecasts for January, versus 4.0% prior. Not only the headline inflation data but the core measures like Tokyo CPI excluding fresh food and Tokyo CPI excluding Food and Energy also rose during the stated month. As a result, chatter over the BoJ’s exit from the ultra-easy monetary policy gained momentum.

Other than Japan inflation data, the Bank of Japan's (BoJ) Summary of Opinions, published on Thursday, also underpins the bearish bias of the USD/JPY pair as policymakers are divided over the exit of the ultra-easy monetary policy considering the increasing inflation. “The divergence in views highlights the challenge policymakers face in determining whether the recent cost-driven rise in inflation will shift to one backed by robust demand and higher wages - a prerequisite for raising ultra-low interest rates,” said Reuters.

Furthermore, the US Dollar’s struggle to extend the data-backed run-up also pleases the USD/JPY buyers. That said, the US Dollar Index (DXY) marked the first daily positive in three while bouncing off the lowest levels since May 31, 2022, poked earlier on Thursday, close to 101.80 by the press time.

On Thursday, the US Bureau of Economic Analysis’ (BEA) first estimate of the US fourth quarter (Q4) Gross Domestic Product marked an annualized growth rate of 2.9% versus 2.6% expected and 3.2% prior. On the same line, the Durable Goods Orders jumped 5.6% in December versus 2.5% market forecast and -1.7% upwardly revised prior. It should be noted, however, that the growth of Personal Consumption Expenditures Prices weakened to 3.2% QoQ in Q4 compared to 4.3% marked forecast and prior readings. Further, Core Personal Consumption Expenditures eased to 3.9% QoQ for Q4 from 4.7% previous readings, versus 5.3% expected.

Amid these plays, the US 10-year Treasury yields not only snapped a two-day downtrend but also posted the biggest daily gains in a week while rising to 3.50%. It’s worth noting that the key US equity benchmarks on Wall Street also managed to rise despite mixed earnings reports and firmer yields.

Looking forward, the Fed’s preferred inflation gauge, namely Core Personal Consumption Expenditures (PCE) - Price Index for December, expected to remain unchanged at 0.2% MoM, will be crucial for the clear directions ahead of the next week’s Federal Open Market Committee (FOMC) meeting.

Technical analysis

The 21-DMA surrounding 130.00 keeps pushing USD/JPY down even as a fortnight-old support line, close to 128.80 at the latest, puts a floor under the prices for a short term.