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The USDJPY pair shows an upward momentum; however, the recent rise in Tokyo CPI has the potential to trigger a pullback. The USD’s performance has been inconsistent amid anticipation of upcoming tariff announcements.
The recent announcement of a 25% tariff on auto imports briefly strengthened the greenback, but gains subsided. The market anticipates two to three rate cuts this year, with sentiment cautious ahead of the tariff plan.
Tokyo Inflation Surprise
Tokyo CPI figures that exceeded expectations boosted the Yen, which could influence the Bank of Japan’s decisions on interest rate hikes. Market expectations for interest rate tightening are currently around 34 basis points by year-end.
On the daily chart, the USDJPY pair has broken above a major trendline and continues to trend higher. The four-hour chart indicates a bullish upward trendline, suggesting that buyers have a good risk-reward setup, while sellers may seek a break below the trendline for downward movement.
Intraday analysis shows a minor upward trendline on the one-hour chart, with buyers aiming for new highs. The focus for upcoming economic indicators includes the US PCE report and the University of Michigan survey, which will assess long-term inflation expectations.
Data Driven Crosswinds
What we’re looking at here is a market that’s not short on enthusiasm but riddled with conflicting undercurrents. The USDJPY pair, having recently sliced above a long-term resistance line on the daily chart, is essentially riding on buyer conviction. Yet the Japanese side of the equation isn’t sitting still anymore. Tokyo’s latest inflation data – comfortably above projections – can easily shift the tone.
If we step back, what’s happening is that Japan’s inflationary signs are beginning to set the stage for something longer-lasting. With consumer prices on the rise, expectations of further policy normalisation from the Bank of Japan are no longer just a wild card. Kuroda’s successor has already made cautious steps, and this new data injects fresh weight into arguments for gradual tightening.
Now, across the Pacific, rate expectations are pulling in a different direction. Market pricing around US interest rates is still pointing to multiple cuts within this calendar year. That weakens the greenback’s footing, despite the fuss around new trade barriers. The recent tariffs may have given the dollar a brief bump, but traders didn’t treat the move as a game-changer. Instead, the gain was promptly reined in. This suggests that risk appetite is specific and time-limited. There’s no economy-wide buy-in to a new dollar strength narrative just yet.
On shorter timeframes, things remain tilted in favour of buyers, particularly on the one-hour and four-hour charts. Momentum indicators and volume profile both support a continuation bias, assuming price action holds above those dynamic trendlines. But that’s a very big if.
Meanwhile, attention is turning to upcoming data from the United States. The expected release of the Personal Consumption Expenditures price index – widely viewed as the Federal Reserve’s preferred inflation gauge – should offer a clearer picture of whether this rate cut narrative has real traction. If the reading comes in hotter than forecasts, the dollar could reprieve some losses. But if disinflation holds, then dollar sellers may regain confidence.
Also on the radar sits the University of Michigan’s long-term inflation expectations survey. Historically not a showstopper, but in this cycle, elevated forward inflation expectations could put the brakes on Fed easing bets. This, in turn, changes the slope of derivative pricing curves and opens the door for instability on both sides of the USDJPY pair.
For those of us assessing risk in the here and now, the game isn’t merely about following the latest charts – though those remain useful guides. Volume-topped resistance zones and trendline supports function more like pressure points. What matters is how price reacts at those pivots, rather than just touching them.
There is also a need to keep track of how index-linked trades and yield spreads develop across sessions. As Japan’s fixed-income space slowly comes to life, any steepening of government debt curves could attract capital back into the Yen. That shift wouldn’t necessarily trigger a dramatic unwind, but it would demand quicker exits for those riding leveraged long positions.
In sum, the thrust of the current data points is that conditions for both sides of the currency pair are changing – and not in sync. One side wants to normalise policy after decades of suppression, the other may be on the verge of easing again. When we look through that lens, setups that looked clean until now may soon become less predictable. This means holding directional biases should come with tighter stops and less assumption.
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