7) USDJPY

Technical Analysis (MA, RSI, STOCH, MACD, ADX)

• M30 - DOWN
• H1 - UP
• H4 - UP
• D1 - UP
• W1 - UP
• MN - UP

• Resistance: 115.60, 116.30, 116.70
• Support: 114.00, 113.40, 112.60

Yesterday the currency pair was multidirectional and traded in a narrow range, almost at the same level of 115.50. However, the upward potential remains. Investors apparently took a wait-and-see attitude ahead of important macro data on inflation in the US. The mood of Market players continues to gradually move towards risky assets. The market phase is still Risk-OFF, but the value of the Fear-Greed indicator is practically in the neutral zone and is 40.

In terms of geopolitical risks and the situation in Eastern Europe, so far everything is limited to verbal skirmishes, but the markets continue to remain cautiously optimistic. The demand for protection is gradually declining, but as we have seen repeatedly, optimism is a fragile thing, any abrupt statement can lead to another round of risk aversion in a moment. Moderate risk momentum, reflected by the bullish sentiment in global stock markets, caused some selling around safe-haven currency, the US dollar and the Japanese Yen.

However, growing expectations of a 50 basis point Fed rate hike in March served as a tailwind for the US dollar. In fact, markets were counting on the possibility of a more aggressive Fed policy to combat stubbornly high inflation.

Neither the US nor Japan published anything overly important in terms of macro data yesterday. However, the Governor of the Bank of Japan, Haruhiko Kuroda, spoke today. Which, as usual, was in his own style, but today, as it seemed to the markets, he said everything. A couple of key theses: 'The probability of a sharp acceleration in consumer inflation in Japan is very small'; 'No chance of discussing dropping the simplified policy for the remainder of my tenure';

In other words, the Bank of Japan will continue to ease monetary policy a little longer, as inflation does not exceed 2%. Wage growth will also be key for Japan. Nearly everyone is now pointing out that prolonged monetary easing helped boost corporate profits and put an end to deflation in Japan. So, in the coming years, it is premature to discuss the abandonment of soft policy by the Bank of Japan. That will continue to put strong pressure on the yen.

For the time being, we observe cautious trading in anticipation of fresh data on the US consumer price index for January, which will be published later. Inflation expectations are formed in two variants.

CPI is above 7.3%, while core inflation is above 5.9%.
Markets will assume that faster inflation will trigger a stronger Fed response. The higher the inflation rate, the greater its impact on the markets. Stocks will fall, especially interest-sensitive stocks, Treasury yields will rise, and the US dollar will also rise.

CPI is below 7.1%, while core inflation is below 5.7%.
A fall in the CPI of 0.3% or more does not mean that inflation has peaked, but the lower the level, the more likely it is that this is the beginning of a trend towards a slowdown in inflationary pressures. Markets will expect a much lower likelihood of a 0.5% rate hike or balance sheet cut at the March FOMC meeting. Stocks will rise, Treasury yields will decline, and the dollar should fall.

Today we are watching:
- US Consumer Price Index (CPI) (YoY) (Jan)
- Number of Initial Jobless Claims in the US
Tomorrow:
- Japan public holiday - National Day
- Fed Monetary Policy Report

Forecasts for the currency pair have not changed. The yield of benchmark 10-year US bonds in tight terms approached 2%, which leads to an increase in the difference between the yields of 10-year US and Japanese bonds, which continues to be the main upward driver. Plus, let's not forget the BOJ's yield curve control policy, where the yield on 10-year Japanese government bonds is close to zero, the BoJ recently once again confirmed its commitment to this policy.

Amid all this, a meta-prediction can be made that the US dollar, thanks to the Fed's promise, will be stronger compared to the currencies of countries whose rate prospects are static, including Japan. In other words, we will observe a more bullish market for the currency pair throughout 2022.