The USD/JPY pair extended its decline on Friday, reaching its lowest point since early February, amid increasing speculation that the Federal Reserve may be nearing greater confidence in inflation heading towards the 2% target, which could prompt the central bank to start lowering borrowing costs.
The dollar’s subdued performance ahead of the weekend was exacerbated by February’s employment report, which revealed an uptick in the unemployment rate to its highest level in two years, causing concerns about potential vulnerabilities in the U.S. labor market.
The main driver of USD/JPY’s downturn was a media report suggesting that the Bank of Japan is considering ending negative rates at its March meeting, encouraged by the expectation of significant wage increases during the year’s annual wage negotiations between unions and major companies.
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As the possibility of the Bank of Japan moving away from its ultra-loose monetary policy nears, a sustainable yen recovery becomes more plausible, suggesting that the Japanese currency may be poised for a strong comeback.
While the outlook for USD/JPY is becoming less optimistic, its immediate trajectory remains uncertain. For instance, a potential surprise in next week’s U.S. CPI report—such as higher-than-expected inflation—could trigger a temporary rebound before a more extended pullback later in the year. This makes monitoring the inflation report essential for traders.
Upcoming U.S. CPI Data
Source: DailyFX Economic Calendar
Technical Analysis of USD/JPY
The USD/JPY pair continued its retreat on Friday, dropping below support levels at 147.85/147.50 and hitting its lowest point in over a month. If the decline continues, the next major support levels to watch are 146.60 and 146.10 (the 200-day simple moving average). Falling below these areas could lead to further attention on the 145.00 level.
On the other hand, should buyers regain control and prompt an unexpected bullish reversal, resistance levels to watch include 147.50/147.85 and 148.90. If the momentum continues, market focus will likely shift to 149.70 and 150.90.
USD/JPY Price Action Chart
