USD/JPY: Bullish momentum has stalled, but uptrend intact until Fed blinks

As my colleague Joe Perry noted last week, most central banks are expected to raise interest rates, in some cases dramatically, in the coming year in their fight against inflation.

The biggest outlier to this trend is the Bank of Japan, which is still actively easing monetary policy in an effort to stoke inflationary pressures amid a rapidly aging populace. It is notable that Japan’s “core” CPI (excluding fresh food and energy prices) rose above 0% for the first time since 2020 last month, but regardless, traders are still pricing in just an outside chance of even a single 25bps rate hike from the BOJ in the next year, dramatically lower than the 200-300bps of rate increases expected from most other central banks.

On a day-to-day basis, changes in US treasury yields tend to drive the USD/JPY exchange rate. As the yield on the benchmark 10-year treasury bond has lost its upside momentum and spent the last month consolidating around 3.00%, so too has the huge March-April rally in USD/JPY stalled:

Source: StoneX, TradingView

Looking ahead, expectations for FOMC policy will be a major driver for USD/JPY. Until Jerome Powell and company hint that interest rates increases will slow down or the Japanese economy starts to see meaningful inflation (both appear unlikely any time soon), USD/JPY should be well supported.

As we go to press, the key support level to watch is the 1-month low near 127.00; as long as rates hold above that area, the momentum remains with the bulls for a potential break to fresh 20-year highs above 131.25. To the topside, the next major level of resistance comes in around 135.00, which marks the highest level the pair has traded at since 1998.

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.