USD/JPY bears eye break of 151 as GDP bolsters hawkish-BOJ bets

View related analysis:

• Bullish-yen bets surge at record pace, USD outflows continue: COT report
• AUD/USD weekly outlook: AUD/NZD Implied vols rise into RBA, RBNZ
• CAD, AUD look set to benefit as the USD bull case becomes unhinged
• GBP/USD, GBP/JPY look set to extend their bounce (to various degrees)

It was the first Monday in three weeks to not kick-start the week with a bang. The US public holiday to celebrate Washington's birthday kept volatility relatively suppressed, compared to the flurry of headlines surrounding tariffs and DeepSeek AI seen on prior Mondays. But while it was quieter than recent Monday’s, there was still some action where then Japanese yen was concerned.

The yen was the strongest FX major on Monday after a strong set of growth figures bolstered bets of BOJ hikes. GDP rose 2.8% y/y in Q4, beating 1% the 1% forecast and Q3 was revised higher to 1.7% from 1.2%. GDP also increased 0.7% q/q, above the 0.3% estimate and upwardly revised to 0.4% from 0.3% in Q3.

Economists continue to suspect the BOJ (Bank of Japan) will wait until summer until they hike by another 25bp to 0.75%, with money markets favouring an end-of-year rate of 1%. But each increment of positive data can bring forward those expectations and support the yen accordingly.

Japan’s economy is also outperforming expectations on a relative basis compared with its peers, looking through the lens of the CESI (Citi Economic Surprise Index). The CESI uses an adaptation of a 3-month z-score of economic data compared to consensus estimates, where a positive read shows data is outperforming forecasts while a negative number shows it missing forecasts. Not only is Japan’s CESI rising week over week, but it is also the closest to its 52-week high compared to all major economies and regions.

Economic events in focus (AEDT)

As outlined in my AUD/USD weekly outlook and RBA preview video, a 25bp cut from the RBA seems likely today. And as markets have been pricing this in for several week, the focus shifts to any revisions in their economic forecasts, statement or slipups in the press conference to either reshape or confirm future monetary policy expectations.

• 14:30 – RBA interest rate decision (-25bp expected)
• 18:00 – UK earnings, employment
• 20:30 – BOE governor Bailey speaks
• 00:30 – CA CPI
• 02:20 – FOMC member Daily speaks

USD/JPY technical analysis:

USD/JPY fell for a third consecutive day on Monday, with the 151 handle less than a day’s typical trading-range away. It seems likely the level will be tested, and my bias is for an eventual break beneath it. But that is not to say a sustained breakout will arrive immediately.

The 151 handle is just pips above the month-to-date low, and an inverted hammer formed on the USD/JPY weekly chart to show a hesitancy to break immediately lower. Furthermore, the US dollar index has stalled around a 100% projection – which could assume the low of an ABC correction. And quiet trade on Monday saw prices fail to break beneath Friday’s low, which is only marginally beneath the January low. Friday’s bearish candle was also accompanied with lower volume to show a lack of conviction from bears on the day of the supposed breakout.

Put together, there is a reasonable chance of at least a minor bounce for USD/JPY and the US dollar index from current levels. Perhaps this could come in the form of a false break of 151 on USD/JPY before a bounce, at which point bears could then monitor prices for a swing high to form on a lower timeframe.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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