USDJPY watch: Inflation release to shape yen’s path?

  • Japan recently slipped to become the world’s fourth-largest economy.
  • The Bank of Japan (BOJ) is facing pressure to address the depreciation of the yen by tightening the country’s ultra-easy policy.

Japan’s economy recently slid to the fourth-largest position, trailing Germany. This shift is primarily attributed to a weakened Japanese yen. In 2023, Japan’s GDP stood at approximately $4.2 trillion, while Germany’s was around $4.45 trillion.  

The weakness in the Japanese yen is pressuring BOJ Governor Kazuo Ueda to address this by tightening Japan’s ultra-easy policy. However, this move is complicated by concerns about inflation, which BOJ policymakers still consider unsustainable, even as inflation negatively impacts domestic demand, contributing to a technical recession in the Japanese economy.  

The upcoming release of Japan’s inflation rate, scheduled for the coming Monday, is anticipated to significantly influence the BOJ’s decision regarding potential rate hikes in the coming months. Analysts predict a possible rate increase as early as April, especially if the country’s annual spring wage negotiations confirm a trend of substantial wage increases.  

On the 4-hour chart, we are watching for the possibility of the USDJPY breaking above the weekly high of 150.430 and reversing the string of lower highs going back to the beginning of last week (which just so happens to be the yearly high for the pair).

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