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26 May 2025,05:59

Daily Market Analysis

USD/JPY Falls as BoJ Rate Hike Bets Intensify Following Upbeat Inflation Data

26 May 2025, 05:59

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 Key Takeaways:

*Japan’s April core inflation rose to 3.5% YoY, above forecasts.

*BoJ’s policy normalization expectations strengthen following hawkish comments from Deputy Governor Uchida.

The Japanese yen extended its rally on Tuesday, prompting a further decline in the USD/JPY pair, as markets absorbed a stronger-than-expected inflation print that renewed speculation of additional tightening by the Bank of Japan (BoJ) in the months ahead.

Japan’s headline Consumer Price Index (CPI) rose 3.6% year-on-year in April, in line with March’s reading, while core CPI, which excludes volatile fresh food prices but includes energy, accelerated to 3.5% YoY from 3.2% the previous month, topping consensus estimates of 3.4%. The figures, although marking the slowest pace of headline inflation since December, reinforce the view that underlying price pressures remain persistent.

The data comes amid a gradual shift in BoJ tone. Deputy Governor Shinichi Uchida said this week that interest rates may be raised further if the economy shows resilience against external headwinds, including the recent imposition of higher US tariffs. He also noted that inflation is expected to hover near the 2% target under the current outlook.

While a majority of economists surveyed expect the central bank to hold rates steady through September, a growing minority now anticipate a hike before year-end, as the BoJ continues to unwind its ultra-loose policy framework.

Technical Analysis

USD/JPY, H4

The USD/JPY pair is currently hovering just above a key support zone at 142.00, following several sessions of downward pressure. Technical indicators are mixed—MACD reflects weakening bearish momentum, while RSI sits near 33, suggesting the pair is approaching oversold territory.

Should the support at 142.00 break decisively, the pair could target the next psychological support at 140.30. However, if bearish momentum continues to fade, consolidation between 143.75 (resistance) and 142.00 (support) could unfold in the near term.

Resistance levels: 143.75, 146.10

Support levels: 142.00, 140.30

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