USD/JPY slides below 132.00 despite mixed Tokyo Inflation data, focus on Fed Chair Powell

• USD/JPY extends a two-day downtrend even after mixed Tokyo inflation figures.
• Tokyo Consumer Price Index eased below market forecasts, CPI ex Food, Energy matched upbeat expectations.
• Downbeat yields, hawkish hopes from BOJ challenge recovery moves.
• Upbeat Fedspeak, long weekend in Japan allowed Yen bears to take a breather ahead of Fed Chair Powell’s speech.

USD/JPY takes offers to refresh the intraday low near 131.60 as it prints a three-day downtrend even as the Tokyo inflation data fails to bolster hawkish expectations from the Bank of Japan (BOJ). The reason could be linked to the long weekend in Japan, as well as the wait for Fed Chair Jerome Powell’s speech and the US inflation data.

The latest Tokyo inflation data shows that the headline Consumer Price Index (CPI) rose by 4.0% versus the 4.5% market forecast and 3.8% previous readings. Further, the Tokyo CPI ex-Food, Energy matched 2.7% YoY forecasts versus 2.5% prior.

However, hawkish Fedspeak and waiting for full markets, as well as a speech from Fed Chair Jerome Powell, put a floor under the Yen prices.

Given the escalating price pressure in Japan, the odds of the Bank of Japan’s (BOJ) exit from the easy money policy gain momentum and weigh on the USD/JPY. That said, Japanese Prime Minister Fumio Kishida said on Sunday his government and the central bank must discuss their relationship in guiding economic policy after he named a new Bank of Japan (BOJ) governor in April, reported Reuters. The recent chatters over the BOJ’s readiness to edit the Yield Curve Control (YCC) policy seemed to have weighed on the USD/JPY prices of late.

It’s worth noting that the hawkish comments from the Fed policymakers join the firmer prints of the US inflation expectations to challenge the USD/JPY bears.

On Monday, Atlanta Federal Reserve bank president Raphael Bostic said it is ''fair to say that the Fed is willing to overshoot.'' On the same line, San Francisco Federal Reserve Bank President Mary Daly stated that they are determined, united, and resolute to bring inflation down. Additionally, the Federal Reserve Bank of New York's monthly Survey of Consumer Expectations showed on Monday that the US consumers' one-year inflation expectation declined to 5% in December from 5.2% prior. Alternatively, the three-year ahead expected inflation remained unchanged at 3% and the five-year ahead expected inflation edged higher to 2.4% from 2.3%.

Against this backdrop, the US 10-year Treasury yields dropped five basis points to 3.51% while printing the three-day downtrend, whereas Wall Street closed mixed.

Looking forward, USD/JPY traders will pay attention to Fed Chairman Jerome Powell’s speech and Thursday’s US inflation data for near-term directions amid receding hawkish bias for the Fed.

Technical analysis

A daily closing beyond the 21-DMA hurdle surrounding 133.35 becomes necessary for the USD/JPY buyers to retake control, even for the short term.