The Japanese Yen (JPY) weakened on Wednesday as market sentiment improved. Investors reacted to the Japan Service Producer Price Index (PPI) report, which showed a slowdown to a 3.0% year-over-year increase in February. This lower-than-expected figure contributed to JPY depreciation. At the same time, the equity markets maintained a positive tone, further weakening the safe-haven currency. As a result, the USD/JPY pair climbed above the psychological 150.00 mark. However, the downside risks for JPY remain limited due to expectations of continued interest rate hikes by the Bank of Japan (BoJ).
Despite the Japanese Yen's weaken, the BoJ remains committed to its tightening policy. The minutes from the January BoJ meeting reaffirmed policymakers' discussions on the pace of rate hikes. Wage growth in Japan continues to be strong, supporting inflation and making further rate hikes likely. This contrasts sharply with the Federal Reserve's (Fed) expectations of two rate cuts in 2025. The narrowing rate differential between Japan and the US could eventually strengthen JPY, capping further gains in USD/JPY.
Investors are waiting for upcoming economic reports before making decisive moves. The Tokyo Consumer Price Index (CPI) and the US Personal Consumption Expenditure (PCE) Price Index will be released on Friday. These reports will provide further clarity on inflation trends in both countries. Traders are also keeping an eye on US durable goods orders and speeches by several Fed officials, which could influence the USD's price movement.
Recent US economic data revealed growing concerns about a slowdown. The Conference Board's Consumer Confidence Index dropped for the fourth consecutive month in March, hitting its lowest level in 12 years. This decline highlights weakening consumer sentiment and increasing recession risks. Additionally, the Fed recently revised its growth outlook downward due to uncertainties surrounding US trade policies. This led to a pullback in the US Dollar from its three-week high, limiting further upside for USD/JPY.
From a technical perspective, the USD/JPY pair needs to establish firm support above the 151.00 level to continue its upward momentum. The pair recently broke above the 200-period Simple Moving Average (SMA) on the four-hour chart, signaling bullish potential. However, failure to hold above 151.00 could trigger a pullback toward the 149.55 support level. If further declines occur, USD/JPY could slide toward the 149.00 mark, with additional support near 148.75.
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Japanese Yen weakens as market optimism rises, but BoJ's rate hike expectations provide support. Read the latest analysis on USD/JPY trends.
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