- USD/JPY rallies to new highs, reaching 142.60.
- The US Dollar is bouncing back from earlier losses while the Japanese Yen declines.
- US inflation continues to decrease at a faster rate than anticipated.
On Friday, the USD/JPY is reaching new highs as the US Dollar (USD) attempts to recover from earlier losses. This is paired with a general weakening of the Japanese Yen (JPY) as market activity winds down for the year in anticipation of the holiday break and the final trading week of 2023.
The Yen initially saw an increase on Friday after the release of the Japanese National Consumer Price Index (CPI) Inflation, which was in line with expectations. The Core Japan CPI for the year through November met market forecasts of 2.5%, compared to the previous figure of 2.9%.
Despite Japanese inflation moving closer to the Bank of Japan’s (BoJ) 2% target, the central bank remains unconvinced of a lasting increase. The BoJ continues to maintain an extremely loose monetary policy with negative interest rates, expecting inflation to drop below 2% annually by 2025.
Furthermore, the US Dollar declined again on Friday following a faster-than-expected decrease in the US Personal Consumption Expenditures (PCE) Price Index, leading to renewed expectations of rate cuts. However, the Greenback is making gains and recovering some of the day’s losses as the week’s final trading session progresses.
Market expectations of increased rate cuts in 2024 have been sparked by declining US inflation, leading to discrepancies between the Fed’s forecasts and market pricing.
Regarding the technical outlook, the USD/JPY reached a high of 142.66 on Friday, but is encountering resistance near the 50-hour Simple Moving Average (SMA). While the pair has seen a rebound, it remains bearish, with lower highs evident in the charts. The USD/JPY is currently trading down over six percent from November’s peak levels near 151.90.
