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USDJPY Heading Lower

USDJPY is under heavy selling pressure as we head towards the US session on Monday. Traders continued to offer the pair through early European trading, extending the declines seen from the Asian open overnight. The pair has now shed almost 3% from the YTD high as a shift in expectations regarding the BOJ continues to drive sentiment.
 

BOJ Tightening Expectations

Traders are becoming increasingly expectant of a shift in BOJ monetary policy. Recent inflation data shows that CPI continues to hold above the bank’s 2% target, arguing the need for a rate cut. The BOJ itself has warned that it is getting closer to needing to exit its ultra-loose monetary policy, in line with inflationary trends. Overnight, the latest Japanese GDP data came in above forecasts, putting further pressure on the bank.
 

Fed/BOJ Divergence

While the market is expecting the BOJ to begin policy normalization as early as March, this outlook is reversed for the Fed. In line with falling US inflation data and weakening economic data, the market is expecting the Fed to begin cutting rates soon. Speaking last week, Powell said the Fed is waiting for juts a bit more evidence before it begins cutting rates. While no shift is expected this month, a weak CPI reading tomorrow should confirm expectations of a June rate cut, to be highlighted this month, keeping USDJPY pressured lower near-term.

Technical Views

USDJPY

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The failure at the 151.81 level has seen the market turning heavily lower. Price has now broken below the 148.98 level and with momentum studies bearish, the focus is on a continuation lower near-term and a test of the 145 level next.

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