Today, after an intraday drop during the Asian session, the USD/JPY pair is attracting new buyers. Following the statement by the Bank of Japan's Governor Kazuo Ueda that the central bank would carefully study conditions before deciding to end stimulus, the Japanese yen began to lose upside momentum. This stems from Ueda's statements yesterday that the Bank of Japan aims to move away from its easy policy, but this shift can only occur when a 2% inflation rate becomes visible. This dashed hopes for a potential policy change next week. Moreover, bullish sentiments in the stock markets undermine the safe-haven yen and act as a tailwind for the currency pair.
Nonetheless, investors are convinced that another significant wage increase by Japan's largest companies in the coming months will pave the way for the Bank of Japan to end negative interest rates. For example, Rengo, Japan's largest labor union group, stated that its member organizations demanded an average wage increase of 5.85% this year. This marks the most significant growth in about 31 years. Major companies such as Toyota, GS Yuasa, Nissan Motor, Nippon Steel, and Hitachi have fully responded to the union's demand for wage increases. Consequently, this supports the yen.
Speaking of its rival, amid uncertainty about the precise timing of the Federal Reserve's interest rate cuts, the US dollar keeps struggling to attract buyers. This is another factor contributing to the limited upside potential in the USD/JPY pair.
February's consumer inflation in the United States was slightly higher than expected, thus reinforcing rumors that the Fed may delay interest rate cuts in the near future.
However, markets still estimate a 70% probability that the US central bank will start cutting interest rates at its June monetary policy meeting. This has led to a new decline in US Treasury yields, forcing dollar bulls to adopt a defensive stance, thereby requiring some caution before positioning for a significant rise in the USD/JPY exchange rate.
Ahead of key central bank events next week, traders should refrain from placing aggressive directional positions. Next Tuesday, the Bank of Japan will announce its long-awaited decision, followed by the FOMC's policy update on Wednesday.
From a technical point of view, the USD/JPY pair is holding steady above the 100-day simple moving average (SMA) but faces resistance in the form of the round level of 148.00. Since oscillators on the daily chart are still in negative territory and far from the oversold zone, this signals a potential sell-off at around 148.00. A breakout of this support level would mean that a pullback from the 152.00 level has run its course and would allow spot prices to come back to the 149.00 mark.
Alternatively, a fall below 147.15, the Asian session's low, is likely to be limited by the support level of 147.00, followed by the monthly low around 146.50 and the 200-day SMA. Further selling activity, dragging the price below the 146.00 mark, would be seen as a new trigger for bears and pave the way for steep losses. In this case, the USD/JPY pair will likely attempt to test the 145.50 level before falling to the next round level.
