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21.03.2025 12:07 PM
USD/JPY. Analysis and Forecast

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Today, following the release of data showing a February slowdown in the national Consumer Price Index (CPI), the Japanese yen continues to trade with a negative tone, creating uncertainty in the market.

The data shows that Japan's national CPI rose 3.7% year-over-year in February, down from 4% in the previous month. Although this slowdown was expected, it will likely influence Japan's economic policy. The nationwide core CPI, which excludes fresh food, rose 3.0% compared to a year earlier, slightly above the expected 2.9%, but still below the previous 3.2% reading.

Interestingly, preliminary results from the spring labor negotiations (Shunto) indicate that Japanese companies have largely agreed to substantial wage increases for a third consecutive year. This could boost consumer spending and maintain inflationary pressure, thereby providing room for the Bank of Japan to raise interest rates further.

BoJ Governor Kazuo Ueda emphasized that the Shunto results align with expectations, and that the central bank will continue its policy until it is clearly time to act. Achieving the 2% inflation target is important for the BoJ's long-term credibility, and the bank is prepared to adjust policy depending on economic and price conditions.

Investors are confident that strong wage growth in Japan could stimulate consumer spending and support inflation, giving the BoJ scope for rate hikes in 2025.

On the other hand, the Federal Reserve has announced plans to cut interest rates twice by 25 basis points each before the end of the year, due in part to a downward revision in growth forecasts amid ongoing trade policy uncertainty. Fed Chair Jerome Powell noted that tariffs could restrain economic growth, posing additional challenges for the U.S. economy.

Consequently, rising demand for the U.S. dollar, supported by the Fed's rate cut projections, is helping USD/JPY maintain intraday gains above the key 149.00 level.

However, the divergence between expected Fed easing and BoJ tightening creates a standoff in the pair, limiting the dollar's upside and providing support to the lower-yielding yen. This calls for caution when opening long positions on further USD/JPY growth.

Technical Outlook

A strong move above the 149.25–149.30 zone would allow USD/JPY to retest the psychological level of 150.00. A break above 150.15 could trigger a short-covering rally, pushing prices toward the interim level at 150.60, followed by 151.00, and ultimately the monthly high near 151.30.

On the other hand, the Asian session low near 148.60 now serves as immediate support. A drop below this level would accelerate the decline toward the weekly low of 148.20–148.15, reached on Thursday.

Further key support levels are located at 148.00 and 147.70—a break below these would open the way to 147.35 and 147.00, and eventually to the 146.55–146.50 area, which marks the lowest level since early October. This view is reinforced by oscillators on the daily chart, which remain in negative territory.

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