The USD/JPY pair rose 0.35% on Monday and traded at around 113.70 ahead of the US session, quickly erasing Friday’s post CPI losses.
US inflation & Fed in focus
Friday's data showed that the US inflation, measured by the CPI index, rose +6.8% YoY, meeting forecasts. It was the fastest rate of increase since 1982 . In addition, the core CPI jumped 4.9 YoY, as expected, its highest since 1991.
The greenback fell in the initial reaction, but the dip was bought as the Fed is expected to raise rates three times in 2022 . This week’s Federal meeting will be under scrutiny as the central bank will likely fasten the pace of tapering amid soaring inflation.
On the other hand, US yields declined on Friday , and it looks like the 10-year yield has given up any bullish attempts, falling below the 1.5% threshold again, possibly undermining the USD/JPY pair.
Japanese macro data moving the JPY
From other news, the Japanese Tankan large manufacturing outlook slowed to 13 in Q4, down from 14 in the third quarter. On the other hand, the non-manufacturing outlook improved to 8 from 3 previously. Furthermore, the the all-industry Capex indicator declined to 9.3% from 10.1%, well below analysts’ expectations of 9.8%
Additionally, Japan’s machinery orders fell dramatically year-on-year in October, printing 2.9% from 12.5% in September. However, the monthly change improved sharply to 3.8%.
Commenting on the outcome of the central bank’s Tankan Survey, a Bank of Japan (BoJ) official said, “most firms that replied in December Bank of Japan Tankan likely did not take into account impact of Omicron.”
On inflation, the official noted that Japanese firms' inflation expectations for one year ahead stand at +1.1%, the highest level since September 2015.
Additionally, Japanese Prime Minister Fumio Kishida said he would secure a budget to help the economy recover during an emergency (should the Omicron variant cause further damage to the economy).
The short-term chart is rather neutral as the pair has been moving sideways since November. However, the initial resistance is expected in the 113.85 area, and if bulls push the pair above it, we could see a rally toward 114.50. Two critical resistances are above that: at 115 and 115.50. The greenback must climb above them to confirm the long-term uptrend.
Alternatively, the support is seen in the 113.30 zone before the key medium-term demand zone near 112.60.