Facts:
- Inflation in Japan accelerated in January, with the core CPI index rising by 3.2% year-on-year, exceeding expectations of 3.1%.
- On the other hand, BOJ Governor Kazuo Ueda quickly cooled sentiment by signaling that the central bank is still ready to intervene through bond purchases if necessary.
- In the medium term, a weakening dollar and a potential return of inflationary pressure from Japan could positively impact the strengthening of the yen against the dollar.
Recommendation:
Short position at market price
- TP: 145.0000
- SL: 153.0000
Opinion:
Today’s inflation report from Japan showed a significant increase in price pressure, exceeding analysts’ expectations. Inflation in Japan accelerated in January, with the core CPI index rising by 3.2% year-on-year (expectations: 3.1%). Overall inflation jumped to 4.0%, driven by rising food prices, including an almost threefold increase in cabbage prices. These data reinforced expectations of further monetary tightening by the BOJ. However, the euphoria did not last long, as shortly afterward, BOJ Governor Kazuo Ueda signaled that the central bank is still ready to intervene to counter excessively strong market movements. Finance Minister Kato also warned about the impact of rising bond yields on government spending, cooling market speculation about imminent interest rate hikes.
However, we believe that in the medium term, the above factors may still positively influence the strengthening of the Japanese currency against the US dollar. If inflationary pressure persists, the BOJ will be forced to change its stance. On the other hand, the dollar remains in a strong downtrend, losing for almost the third consecutive week. In light of the above, we recommend taking a short position at the market price on USDJPY with a simultaneous stop-loss order to minimize the risk of loss.
Methodology and assumptions used:
The recommendation was based on technical analysis of the chart and price action of USDJPY. The target level and stop loss order were placed in the zone of previous price reactions of supports and resistances. You can read more about this methodology here:
- https://www.xtb.com/en/education/what-is-support-and-resistance
- https://www.xtb.com/en/education/types-of-trends-in-trading
Source: xStation 5
