The USD/JPY currency moved higher on Tuesday, rising 0.3% during the US session and trading at around 115.50. The latest correction from five-year highs led to a retest of the 115 handle, but bulls seem to have successfully defended it.
Bank of Japan remains dovish
Bank of Japan (BoJ) officials see price gains reaching near 2% in the second quarter on higher energy costs and supply-chain disruptions, MNI reported today.
With a fiscal stimulus kicking in and the output gap turning positive around mid-2022, BOJ is looking at wages and costlier consumer goods to more pressure, the report said.
At its next monetary policy meeting, scheduled for January 17 and 18, the BoJ may raise the 2022 inflation forecast to 1% or higher from the current 0.9%. However, monetary policy should remain ultra-lose. Thus, the yen might continue to weaken against the greenback.
The Fed endures in hawkishness
Later in the day, Federal Reserve Chair Jerome Powell will testify on the renomination to chair the Federal Reserve Board of Governors before Senate Banking Committee in Washington DC. His comments regarding monetary policy will be closely watched as the Fed has turned notably more hawkish than previously anticipated.
The NFIB Business Optimism Index for December and the IBD/TIPP Economic Optimism Index for January will be featured in the US economic calendar.
US yields continue to be elevated, with the 10-year yield briefly rising above 1.8%, while the 2-year remained near 0.9% today, the highest level in two years.
Technically speaking, the critical support is near 115.10, and if broken to the downside, we could see a more significant correction toward 113.80. The MACD indicator also looks like it will send a bearish signal on the daily chart.
Alternatively, the first short-term target for bulls is at last week’s highs near 116.20, and if reached, we could see another leg higher toward 117.