USD/JPY Price Forecast: Bulls face rejection near 200-day SMA ahead of US CPI report

• USD/JPY drifts lower as a stronger PPI from Japan lifts bets for a December BoJ rate hike. 
• Rising US bond yields lift the USD to a one-week high and should limit losses for the pair.
• Investors might also await the release of the US CPI report before placing directional bets.

The USD/JPY pair attracts some sellers following the release of a stronger Producer Price Index (PPI) from Japan on Wednesday and for now, seems to have snapped a two-day winning streak to a near two-week top touched the previous day. A preliminary report revealed that the headline Producer Price Index (PPI) increased by 0.3% in November and rose by 3.7% compared to the same time period last year. This marks the third consecutive month of increase and comes on top of last Friday's wage growth figures, which showed that October base pay grew 2.7% YoY, or the fastest rate since November 1992. The incoming data gives the Bank of Japan (BoJ) another reason to hike interest rates in December, which, in turn, provides a modest lift to the Japanese Yen (JPY).

Investors, however, remain sceptic about the BoJ's intention to tighten its monetary policy further on the back of mixed signals from policymakers. In fact, BoJ Governor Kazuo Ueda recently noted that the timing of the next rate hike was approaching. In contrast, BoJ's more dovish board member Toyoaki Nakamura said that the central bank must move cautiously in raising rates. Moreover, some media reports suggested the BoJ may skip a rate hike later this month. This adds to the uncertainty about the BoJ’s December policy decision and might hold back the JPY bulls from placing aggressive bets. Adding to this, the recent US Dollar (USD) move up, to a one-week high, acts as a tailwind for the USD/JPY pair and helps limit deeper losses ahead of the key data risk.

The crucial US Consumer Price Index (CPI) report is due for release later during the North American session, which could offer cues about the Federal Reserve's (Fed) rate-cut path. This, in turn, will influence the near-term USD price dynamics and provide some meaningful impetus to the USD/JPY pair. In the meantime, expectations that the US central bank will adopt a cautious stance on cutting interest rates lead to a further rise in the US Treasury bond yields. This, in turn, pushes the USD Index (DXY), which tracks the Greenback against a basket of currencies, to a one-week high and should cap gains for the lower-yielding JPY. Hence, it will be prudent to wait for strong follow-through selling before positioning for any further depreciating move for the currency pair. 

Technical Outlook

From a technical perspective, the overnight failure to find acceptance above the 200-day Simple Moving Average (SMA) near the 152.00 mark and the subsequent slide warrant caution for bullish traders. Moreover, neutral oscillators on the daily chart make it prudent to wait for a sustained strength beyond the said handle before positioning for an extension of the recent bounce from a near two-month low. The USD/JPY pair might then climb to the 152.70-152.75 region, or the 50% retracement level of the downfall from a multi-month top touched in November. Some follow-through buying, leading to a move beyond the 153.00 mark, could lift spot prices to the 61.8% Fibonacci level, around the 153.70 area. 

On the flip side, any further weakness below the 151.55-151.50 region could be seen as a buying opportunity and is more likely to find decent support near the 151.00 mark. A convincing break below the latter might expose the 150.00 psychological mark, with some intermediate support near the 23.6% Fibo. level, around the 150.50 area. The USD/JPY pair could eventually slide back towards the 149.55-149.50 region en route to the 149.00 round figure and 148.65 zone, or the lowest level since October 11 touched last week.

USD/JPY daily chart