• Tokyo’s inflation re-accelerated in February, beating the Bank of Japan’s targets.
• Policymakers in Japan have noted that the economy is recovering moderately and the wage outlook is improving.
• The US services sector experienced weaker growth in February.

Wednesday’s USD/JPY price analysis unveils a bearish tone, driven by the yen’s impressive ascent due to signs of accelerating inflation. Adding to the currency pair’s downward pressure, the dollar softened after data in the previous session revealed weaker service sector growth.

Tokyo’s inflation re-accelerated in February, according to data on Tuesday, beating the Bank of Japan’s targets and supporting a looming shift in policy. However, underlying inflation slowed, indicating the policy shift might not be as aggressive as markets expect.

Authorities in Japan have noted that the economy is recovering moderately, and the wage outlook is improving. Notably, Deputy Chief Cabinet Secretary Hideki Murai on Tuesday said that Japan was on the path of achieving rising inflation and wages. Moreover, the government is working to broaden pay increases in the country.

On the other hand, the dollar was weak after overnight losses due to poor economic data. The US services sector experienced weaker growth in February as employment fell. As a result, investors are more confident that the US economy is slowing, allowing the Fed to consider a rate cut in June.

Additionally, there was caution in the market ahead of Powell’s testimony to Congress, which might have clues on the policy outlook. However, there is a high chance that the Fed chair will maintain his hawkish tone. Therefore, any dovish message could lead to a big decline in the dollar.

USD/JPY key events today

• ADP Non-Farm Employment Change
• Fed Chair Powell Testifies
• JOLTS Job Openings

USD/JPY technical price analysis: Range support crumbles in solid bearish plunge

On the technical side, USD/JPY is finally breaking below its range support with a solid bearish candle. This is a sign that the bearish divergence in the RSI is finally playing out. Additionally, the price has broken below the previous low and trades well below the 30-SMA, showing the start of a downtrend.

Meanwhile, the RSI is about to dip into the oversold region, supporting solid bearish momentum. With this new decline, the price will likely soon retest the 0.382 Fib retracement level. If the downtrend continues lower, bears will reach the second target at the 0.618 Fib retracement level.

https://www.forexcrunch.com/blog/2024/03/06/usd-jpy-price-analysis-yen-soars-on-signs-of-inflation-growth/