• The US released a report on inflation showing a higher-than-expected annual figure.

• Toyota announced the biggest pay increase for its workers in 25 years.

• Ueda said Japan’s economy was recovering, but there were pockets of weakness.

The USD/JPY forecast revealed a bullish sentiment as the dollar stood resilient after a surprising US inflation report. Meanwhile, the yen remained weak despite substantial pay hikes in Japan.

On Tuesday, the US released a report on inflation showing a higher-than-expected annual figure. Consequently, there were doubts about whether the Fed would cut rates in June. If inflation fails to show a downtrend to the 2% target, the Fed might choose to keep interest rates high. Consequently, the dollar would remain strong.

However, the outlook for rate cuts remains uncertain because the jobs report revealed weaker demand in the labor market. As a result, rate-cut bets went up. Additionally, Powell sounded more dovish in his testimony last week. However, the inflation report tells a different story. This confusion can also be seen in rate-cut bets, which only fell slightly after the inflation report. Ideally, such an upbeat report would have led to a bigger decline in rate cut expectations.

On the other hand, the yen remained weak on Wednesday despite positive wage news. Notably, Toyota announced the biggest pay increase for its workers in 25 years. This is bullish for the yen, as it paves the way for the BoJ to start hiking interest rates as soon as this month.

However, on Tuesday, BoJ governor Kazuo Ueda said the economy was recovering, but there were pockets of weakness. This was a poorer assessment than he gave in January, which weighed on the yen.

USD/JPY key events today

• 30-year US Bond Auction

USD/JPY technical forecast: Rebound faces strong resistance zone

On the technical side, the USD/JPY pair is recovering after a recent decline to the 146.51 key level. Bulls have managed to break above the 30-SMA resistance, showing a shift in sentiment to bullish. At the same time, the RSI has crossed above 50 into bullish territory, showing stronger bullish momentum.

However, the price also faces a strong resistance zone comprising the 0.382 Fib retracement and the 148.01 key level. A break above this zone would confirm a bullish reversal. However, if the price reverses to retest the 146.51 support level, the previous decline will continue lower.

https://www.forexcrunch.com/blog/2024/03/13/usd-jpy-forecast-dollar-holds-firm-after-inflation-yen-weakens/