USD/JPY bulls move in and eye a correction towards 129.50

USD/JPY is pressured due to a number of impactful macro themes, including the Bank of Japan's recent pivot, the Federal Reserve's decreasingly hawkish sentiment and the US economic disinflationary data. At the time of writing, USD/JPY is trading at 128.00 ahead of the Bank of Japan decision and after last week's headlines (Wednesday). The US Consumer Price Index (last Thursday) helped to nail down the coffin for the pair also. 

USD/JPY dropped away from a trendline resistance on Wednesday before the highly anticipated Consumer Price Index event on Thursday when a headline about the Bank of Japan, as reported by Japanese media Yomiuri, circulated the wires. The news signalled that the Japanese central bank is up for reviewing the side effects of massive monetary easing in the monetary policy meeting next week. “BoJ reviews due to skewed interest rates in markets even after last month's tweak in bond yield control policy,” adds Yomiuri per Reuters. As a consequence, the yen moved higher sharply vs. the greenback and broke 130 and reached 129.60 ahead of the US CPI data which spurred the price lower to 127.45. 

Meanwhile, despite prospects of a Fed pivot, there are observers that are sceptical of the Federal Reserve. Analaysts at TD Securities argued that ''while the precious metal space is no longer in a selling mode, there continues to be correction risk as it is not all certain that inflation has been defeated and that the US central bank is ready to get less restrictive anytime soon.''

Analysts at Brown Brothers Harriman argued that ''core PCE has largely been in a 4.5-5.5% range since November 2021 and we think the Fed needs to see further improvement before even contemplating any sort of pivot.''

''WIRP suggests a 25 bp hike February 1 is fully priced in, with nearly 30% odds of a larger 50 bp move.  Another 25 bp hike March 22 is fully priced in, while one last 25 bp hike in Q2 is nearly 45% priced in that would take the Fed Funds rate ceiling up to 5.25%. However, the swaps market continues to price in an easing cycle by year-end and we just don’t see that happening.''

USD/JPY technical analysis

The pair has since continued lower and eyes the 126.50s. However, the daily M-formation could hold up the bears and attract a bid towards the 129.50s beforehand.