The USD/JPY reacted mildly to the statement by Jerome Powell. In his speech, he avoided commenting on the strong jobs numbers that were published on Friday last week. 

Bearish view

• Sell the USD/JPY pair and set a take-profit at 130.
• Add a stop-loss at 134.
• Timeline: 1-2 days.

Bullish view

• Set a buy-stop at 132.50 and a take-profit at 133.25.
• Add a stop-loss at 131.

The USD/JPY exchange rate came under pressure after the latest statement by Jerome Powell and after important Japanese economic numbers. The pair dropped to a low of 132.18, which was slightly above this week’s low of 129.52. It has fallen by over 13% below the highest point in 2022.
 

Japanese yen strength continues

The USD/JPY price has been in a strong bearish trend in the past few weeks as investors reacted to the hawkish statement by the Bank of Japan (BoJ). In its December policy meeting, the bank decided to adjust its yield control policy. This move was a major change that signaled that the bank was ready to shift its tone on interest rates.

Data published on Tuesday showed that Japan’s inflation was still soaring. The headline consumer price index (CPI) in Tokyo rose from 3.7% in November to 4.0% in December. Excluding the volatile food and energy prices, inflation rose by 4%. Therefore, there is a high possibility that the bank will accelerate its tightening in next week’s meeting.

The USD/JPY reacted mildly to the statement by Jerome Powell. In his speech, he avoided commenting on the strong jobs numbers that were published on Friday last week. Instead, he reiterated that the bank will maintain its independence.

The pair also retreated after World Bank downgraded its global outlook as inflation persisted. The Japanese yen is often seen as a safe haven.

There will be no major economic data from Japan and the US on Wednesday. Therefore, investors will focus on the upcoming US inflation data. Economists polled by Reuters expect the data to show that inflation continued retreating in December.

Natural gas prices have dropped to the lowest point since 2021 while supply chain challenges that happened in 2022 have eased. Also, many retailers have offered significant discounts because of high inventory levels.
 

USD/JPY forecast

The USD/JPY price has been in a strong bearish trend in the past few weeks. It has formed a descending channel shown in black. The sell-off is being supported by the 25-day and 50-day exponential moving averages on the daily chart. It has also moved slightly below the Woodie pivot point while the MACD has remained below the neutral point.

Therefore, the pair will likely continue falling ahead of the upcoming US inflation data. If this happens, the next key support to watch will be at 130.

(Click on image to enlarge)

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