11.03.202501:17 Forex Analysis & Reviews: USD/JPY: The Yen Opens New Price Horizons

The dollar-yen pair continues to be affected by the general decline of the greenback and rising hawkish sentiment surrounding potential policy moves by the Bank of Japan. On Monday, USD/JPY bears tested the 147.00 support level, which aligns with the lower line of the Bollinger Bands on the daily (D1) timeframe. Last week, traders attempted to breach this price barrier but retreated, with Friday's trading session closing at 148.04. On Monday, there was another attempt to break through the 146 level. Given the current fundamental backdrop, USD/JPY buyers face little chance of resisting the sellers' momentum.

The price movement in the market is primarily influenced by data from China. Currently, the yen is experiencing high demand as a safe-haven asset due to increasing risk-off sentiment. Over the weekend, disappointing inflation growth data from China was released. The figures not only fell into the "red zone" but also recorded a decline into negative territory for the first time since January of last year. According to the data, the Consumer Price Index (CPI) decreased to -0.7% in February, compared to the forecast of -0.4%. The Producer Price Index (PPI) also missed expectations, coming in at -2.2%, while most experts had predicted -2.0%. Deflation in the industrial sector has now persisted for 27 consecutive months. In summary, the data indicates a significant slowdown in consumer inflation for February and a continued decrease in industrial goods prices.

Another factor contributing to the selling pressure on USD/JPY is the hawkish signals from the Bank of Japan. In particular, the Bank's Deputy Governor, Shinichi Uchida, stated that if the central bank's forecasts for economic activity and price dynamics are confirmed, it will "accordingly continue to raise interest rates and adjust the degree of monetary policy regulation." While Uchida ruled out a rate hike at the March meeting, he clearly suggested that the next round of monetary tightening is likely to occur soon. He also expressed confidence that Japan's economy "will continue to grow at a pace above its potential growth rate."

Japan's final GDP growth data in the fourth quarter will be released on March 11. According to forecasts, the final estimate will match the initial one. Japan's GDP grew by 0.7% quarterly and by 2.8% year-over-year. For USD/JPY sellers, it is important that the report meets or exceeds expectations, as this would increase the likelihood of another rate hike by the BOJ in May or June.

In any case, the BOJ is expected to wait for the results of the "spring wage offensive" (Shunto), which refers to wage negotiations between labor unions and employers. Japan's largest trade union, Rengo, demands a wage increase of more than 6% for the first time in 32 years, driven by labor shortages and rising inflation.

The next BOJ meeting is scheduled for next week (March 18-19), followed by another on May 1. By the May meeting, the central bank will have more data on CPI trends and the outcome of wage negotiations, which could play a decisive role. BOJ Governor Kazuo Ueda stated after the January meeting that he is prepared to continue raising interest rates "if wage growth supports consumption and the ability of companies to raise prices."

Meanwhile, dovish expectations regarding the Federal Reserve's future actions are increasing. Although traders remain confident that the Fed will keep interest rates unchanged at the March meeting, the probability of a rate cut in May is now estimated at 50/50. According to the CME FedWatch Tool, the likelihood of a rate cut at the June meeting has risen to 85%.

The dollar struggles to find support amid the strengthening dovish sentiment, Donald Trump's tariff policy, and weak U.S. data (nonfarm payrolls, retail sales, consumer confidence, and the ISM manufacturing index).

As a result, the fundamental backdrop for USD/JPY favors further price declines. From a technical perspective, on the daily chart, the pair trades between the middle and lower lines of the Bollinger Bands indicator and below all Ichimoku indicator lines, forming a bearish "Parade of Lines" signal. Short positions would be advisable if USD/JPY bears consolidate below the 147.00 support level (the lower Bollinger Bands line on D1). The next target for downward movement is 146.50 (the lower Bollinger Bands line on W1). The main target is 145.00 (the Kijun-sen line on the MN timeframe).