USD/JPY Price Forecast: Rallies amid retreating JGB yields after BOJ Ueda’s comments

• USD/JPY rebounds swiftly from a multi-month low in reaction to BoJ Governor Ueda's remarks.
• Retreating JGB yields weigh heavily on the JPY and support the pair amid modest USD buying. 
• Japan’s strong National CPI reaffirms BoJ rate hike bets and should limit any further JPY losses. 

The USD/JPY pair stages a solid recovery of nearly 150 pips from the 149.30-149.25 region, or its lowest level since December 3 touched this Friday, and sticks to strong gains through the early European session. The Japanese Yen (JPY) weakened across the board after Bank of Japan (BoJ) Governor Kazuo Ueda showed readiness to ramp up government bond buying if long-term interest rates rise sharply. Ueda's remarks dragged the yield on the benchmark Japanese government bond (JGB) away from its highest level since November 2009, which, in turn, prompted heavy selling around the JPY.

Apart from this, a modest US Dollar (USD) uptick further contributes to the USD/JPY pair's sharp intraday move up. However, a softer-than-anticipated sales forecast from Walmart raised doubt over US consumer health. Moreover, worries that US President Donald Trump's policy moves would boost inflation and further undermine consumer spending keep a lid on the buck. Apart from this, rising bets for continued interest rate hikes by the Bank of Japan (BoJ), bolstered by Japan's strong Consumer Price Index (CPI) this Friday, might hold back the JPY bears from placing aggressive bets and cap the currency pair. 

The Statistics Bureau of Japan reported that the headline National CPI climbed to a two-year high of 4.0% YoY in January from 3.6% in the previous month. Meanwhile, the Core CPI, which excludes volatile fresh food items, grew 3.2% from the previous year, compared to 3.0% recorded in December and touching a 19-month high. Furthermore, a core CPI reading that excludes both fresh food and fuel costs rose 2.5% in January from a year earlier, marking the fastest pace since March 2024. This underscores rising inflationary pressure that has drawn hawkish remarks from several BoJ policymakers. 

In fact, BoJ board member Hajime Takata said earlier this week that Japan's real interest rates remain deeply negative, and the central bank must adjust the degree of monetary support further if the economy moves in line with forecasts. This, along with Japan's upbeat Q4 Gross Domestic Product (GDP) growth and expectations that sustained wage gains would spur consumer spending, suggest that the BoJ might hike interest rates more aggressively than initially thought. Hence, it will be prudent to wait for strong follow-through buying before positioning for any further appreciating move for the USD/JPY pair.

USD/JPY daily chart

Technical Outlook

From a technical perspective, Thursday's sustained break below the 151.00-150.90 region was seen as a fresh trigger for bearish traders. Moreover, oscillators on the daily chart are holding deep in negative territory and are still away from being in the oversold zone. This, in turn, suggests that the path of least resistance for the USD/JPY pair remains to the downside, suggesting that any subsequent move up is more likely to confront stiff resistance and remain capped near the aforementioned support breakpoint. 

Some follow-through buying, however, could trigger a short-covering rally and allow the USD/JPY pair to climb further toward the 151.40 intermediate hurdle en route to the 152.00 round-figure mark. That said, a further move up could be seen as a selling opportunity and runs the risk of fizzling out rather quickly near the 152.65 area. The latter represents the very important 200-day Simple Moving Average (SMA), which should act as a key pivotal point and if cleared, might shift the near-term bias in favor of bullish traders.

On the flip side, the 150.00 psychological mark now seems to protect the immediate downside ahead of the 149.60-149.55 region. This is followed by the multi-month low, around the 149.30-149.25 region, touched earlier today. A convincing break below the latter could drag the USD/JPY pair further below the 149.00 mark, towards the December 2024 low, around the 148.65 region.