USD/JPY, AUD/JPY forecast: The yen strengthens on slightly hot CPI data

There were hopes that core CPI for Japan was to fall below the BOJ’s 2% target, given Tokyo’s annual rate of core CPI slowed to 1.6% y/y (1.9% expected). Yet it was not meant to be, with core CPI at the rate of the BOJ’s target of 2% y/y. It was at least slower than 2.3% y/y previously, yet a Reuters poll estimated a drop to 1.8%.

CPI is still above their BOJ’s target at 2.2% y/y, and clearly fresh food and energy remain a sticking point for consumer prices having risen 3.5% y/y. It therefore seems unlikely the BOJ will want to hike rates as soon as Q2 with some measures of inflation remaining elevated. Besides, annual wage negotiations are still underway in Japan and that is arguably the bigger headline to watch given its potential to drive consumer prices higher.

Japan’s fiscal year begins in April, and spring wage negotiations (or “Shunto”) are underway. A trade union official for Rengo has said they’re pushing for a 5% wage increase for their members, which is already more than twice the rate of inflation. Honda have agreed to increase wages by 5.6% alongside a bonus equivalent to seven months pay, whilst Mazda look set to increase ages by 6.8%.

And if such figures are to be widespread across Japan’s economy, it certainly builds the case for the BOJ to finally hike interest rates.

USD/JPY technical analysis:

Source: TradingView, ICE / Intercontinental Exchange, Inc

The above-estimated CPI print saw USD/JPY fall ~20 pips, which is by no means a particularly big move. But it has helped the pair retrace further from its highs as we head closer towards the key US PCE inflation report later this week. Technically, I am now seeking evidence of a swing low for a potential swing trade long on the 1-hour chart.

Prices remain trend support, and today’s low stalled just above a volume node from a prior congestion zone. Low-volatility retracements towards today’s low could be appealing for dip buyers, who anticipate for prices to break above the weekly pivot point.

AUD/JPY technical analysis:

The 40-47 day cycle on AUD/JPY remains alive and well, although its relatively straight rally into 99 suggests it could be due a pullback. A shooting star day reversed at this key level and forms part of a 3-day bearish reversal pattern (evening star formation). Momentum has turned lower for a second day, as a retracement lower now seems to be underway. Bulls could either step aside and seek evidence of a swing low around 98 or the 38.2% Fibonacci level. Alternatively, countertrend bears could seek bearish continuation patterns on intraday timeframes and seek to trade the actual reversal lower. Any low volatility rises to the 2022/2023 highs could also be monitored for evidence of a wing high / lower high on a lower timeframe for a potential short.

Source: TradingView, ICE / Intercontinental Exchange, Inc

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.