It looks poised to retake the 150.00 mark; bulls await US CPI report

• USD/JPY is pulling back after hitting an August high on Thursday.
• BoJ rate hike uncertainty could cap the JPY and help limit losses for the major.
• Investors may also prefer to wait on the sidelines ahead of the key US CPI report.

USD/JPY is retreating from the 149.50-149.55 area or the August high reached earlier on Thursday and is trading in a slight downtrend in the first half of the European session. The intraday pullback has no obvious fundamental catalyst and is more likely to remain limited amid uncertainty over the Bank of Japan’s (BoJ) rate hike plans.

Data on Tuesday showed Japan’s real wages fell in August after two months of gains, and household spending also fell, raising doubts about the strength of private consumption and a sustained economic recovery. Moreover, the BoJ’s quarterly survey revealed on Thursday that the share of Japanese households expecting prices to rise a year from now was 85.6% in September, down from 87.5% in the previous period.

Meanwhile, another BoJ report showed on Thursday that the corporate goods price index (CGPI), which measures the prices companies charge each other for their goods and services, unexpectedly rose to 2.8% in September from a year earlier. That said, a drop in import costs suggested that price pressures from raw material costs were easing. This comes on top of direct comments from Japanese Prime Minister Shigeru Ishiba on monetary policy and eases expectations for further rate hikes, which should cap gains for the Japanese yen (JPY).

The US dollar (USD), on the other hand, is advancing to a new eight-week high as traders appear to have fully priced in another excessive interest rate cut by the Federal Reserve (Fed) in November. Expectations were reaffirmed by the FOMC’s September meeting, released on Wednesday, which showed some participants would have preferred just a 25 bps rate cut amid still high inflation, solid economic growth and low unemployment. This, in turn, continues to act as a tailwind for the dollar and should support the USD/JPY pair.

Traders may also prefer to wait for the release of the latest US inflation figures before placing new directional bets. The crucial US Consumer Price Index (CPI) is due later today and will be followed by the US Producer Price Index (PPI) on Friday. This could play a key role in influencing market expectations about the size of the Fed’s next rate cut, which in turn will drive USD demand and help determine the near-term trajectory for the USD/JPY pair. Therefore, a strong follow-through sell is required to confirm that a multi-week uptrend has exhausted itself.

Technical perspectives

From a technical perspective, last week’s break above the 50-day simple moving average (SMA) for the first time since mid-July and overnight close above the 38.2% Fibonacci retracement level of the July-September decline favors bulls. Furthermore, the oscillators on the daily chart have gained positive traction and are far from overbought territory, suggesting that the path of least resistance for the USD/JPY pair is to the upside.

Therefore, any significant slippage could still be seen as a buying opportunity near the 148.70-148.65 region. This, in turn, should help limit downside for USD/JPY near the 148.00 round figure. The latter should act as a key pivot point which, if broken, could trigger some technical selling and drag spot prices to the intermediate support of 147.35 en route to the 147.00 mark and 146.50 area. On the other hand, momentum beyond the Asian session high around the 149.35 area should allow USD/JPY to chase the recovery of the psychological 150.00 mark and climb further towards the 50% Fibo. level, around the 150.75-150.80 region.

USD/JPY Daily Chart