US CPI Report Takes Center Stage

While the yen gets a boost on expectations of multiple BoJ rate hikes, the US CPI report will influence bets on a June Fed rate cut. Economists forecast headline inflation to ease from 2.7% in December to 2.5% in January, with core inflation expected to be 2.5% (Dec: 2.6%).

Softer inflation numbers are likely to raise expectations of a June Fed rate cut, weighing on the US dollar. Given Fed Chair Powell’s concerns about elevated inflation, USD/JPY is likely to be particularly sensitive to the report.

This week’s hotter-than-expected US jobs report has signaled a less dovish Fed rate path. However, inflation trends are likely to be more critical for the Fed.

Market bets on a more dovish Fed rate path and a more hawkish BoJ policy stance would support the bearish short- to medium-term outlook.

Technical Outlook: Key Levels to Watch

For USD/JPY price trends, traders should monitor technical indicators, key economic data, government policies, and central bank rhetoric.

On the daily chart, USD/JPY remains below its 50-day Exponential Moving Average (EMA), but trades above the 200-day EMA. The EMA positions indicate a bearish near-term but bullish longer-term bias. Nevertheless, positive yen fundamentals align with the short-term technicals, signaling a bearish medium-term outlook.

A drop below the 200-day EMA would indicate a bearish trend reversal, exposing the 150 support level. If breached, 145 would be the next key support level.

Importantly, a sustained fall through the EMAs would reaffirm the negative medium- to longer-term price outlook.