USDJPY Consolidates Before Next Move Up, As Japan Inflation Falls

Yesterday USDJPY made a break of the resistance zone at 144.50, where it consolidated, peaking above 145 as well, while the 100 SMA turned into support. The improved sentiment from the Chinese stimulus package helped risk assets, but hurt the JPY which acts as a safe haven.

The unwinding of the carry trade, which had been in place for the past four years, played a key role in the market turmoil seen in early August. Traders who had borrowed in the low-yielding Japanese yen and invested in the higher-yielding U.S. dollar began unwinding their positions, pushing safe havens like the yen higher and causing USD/JPY to fall below the 140 mark but that period seems to be over now as the immediate trend has turned bullish.

USD/JPY Chart H4 – The 20 SMA Turned into Support

Bank of Japan Governor Ueda noted that the pressure to sell the yen had eased as most speculative positions, accumulated since 2020, had been cleared. Japanese authorities have indicated that the impact of this unwinding should now be behind us. Since hitting its recent low, USD/JPY has rebounded significantly, climbing over 6 cents and maintaining a clear short-term uptrend since mid-September.

On the H4 chart, the pair has stabilized above the 50, 100, and 20-period Simple Moving Averages (SMAs), with each serving as support during minor pullbacks. The 100 SMA (red) was the most recent to break above, successfully holding the price above it yesterday. According to the principle of technical analysis, “the trend is your friend,” suggesting that the odds favor a continued rise in the pair. Last night we also had the Tokyo Core CPI report which showed a considerable slowdown in August, which gives no reason for the BOJ to raise rates.

Tokyo Core CPI YoY for August

• Headline CPI:

  • Came in at 2.2% y/y, which matched expectations.
  • This marks a decline from the prior 2.6% reading in August.

• Core CPI (ex food):

  • Reported at 2.0% y/y, also in line with forecasts.
  • Lower than August’s 2.4%.

• Core-Core CPI (ex food and energy):

  • Held steady at 1.6% y/y, in line with expectations and unchanged from August’s figure.

USD/JPY Live Chart