USD/JPY keeps the red below 130.00, eyes US PCE Price Index for fresh impetus
- USD/JPY meets with a fresh supply on Friday and is pressured by a combination of factors.
- Strong Tokyo inflation fuels speculations about a hawkish shift by the BoJ and lifts the JPY.
- The emergence of fresh USD selling contributes to the intraday slide ahead of the US PCE.
The USD/JPY pair comes under some renewed selling pressure on Friday and reverses a major part of the overnight modest bounce from the 129.00 mark, or the weekly low. The pair remains depressed through the first half of the European session and is currently placed around the 129.80-129.75 region, down over 0.30% for the day.
A combination of factors provides a modest boost to the Japanese Yen (JPY), which, in turn, attracts fresh sellers around the USD/JPY pair. Data released earlier today showed that inflation in Japan's capital, Tokyo rose to a new 41-year high in December. This comes on the back of a similar rise in countrywide inflation and is expected to invite a more hawkish stance from the Bank of Japan (BoJ) later this year. Apart from this, a softer risk tone further underpins demand for the safe-haven JPY.
The US Dollar, on the other hand, struggles to preserve its modest intraday gains and contributes to the offered tone surrounding the USD/JPY pair. In fact, the USD Index, which tracks the greenback against a basket of currencies, languishes near an eight-month low amid the prospects for a less aggressive policy tightening by the Fed. Despite the stronger fourth-quarter growth figures from the US, the markets are still pricing in a smaller 25 bps lift-off at the upcoming FOMC meeting next week.
That said, a goodish pickup in the US Treasury bond yields might act as a tailwind for the greenback and should help limit deeper losses for the USD/JPY pair, at least for the time being. Traders also seem reluctant and move to the sidelines ahead of Friday's release of the Fed's preferred inflation gauge - the Core PCE Price Index. This, along with the US bond yields and the broader risk sentiment, should provide some impetus to the USD/JPY pair and allow traders to grab short-term opportunities.
Technical levels to watch