The Japanese yen wavered on Wednesday as investors reacted to the ongoing bearish bets on the US dollar, soaring Japanese exports, and wait for the upcoming Japanese consumer inflation report.
The USD/JPY exchange rate was trading at 153.55 on Wednesday, down by nearly 4% from its highest level this year.
Japan exports jump, inflation report ahead
The USD/JPY exchange rate wavered after a report by the Finance Ministry showed that Japan’s exports jumped in January, helped by the ongoing AI boom, which helped to offset the slowing auto sector.
Japan’s exports rose by 16.8% in January from the same period last year, higher than the median estimate of 13%.
Computer chip shipments rose by 40%, with most of them moving to China.
This trend may continue as demand for AI data centres continues growing, with four American companies like Amazon, Microsoft, Google, and Meta Platforms planning to spend over $650 billion this year.
The USD/JPY pair also reacted to a major announcement by Japan on US investments.
The country will invest $36 billion in US oil, gas, and critical mineral projects as part of the $550 billion that the two countries agreed on last year following months of trade negotiations.
This announcement came as Sanae Takaichi prepared to visit the United States soon.
The next important catalyst for the USD/JPY exchange rate will be the upcoming Japan inflation report, which will come out on Friday this week.
Economists polled by Reuters expect the data to show that Japan’s inflation softened to 1.9% in January from the previous 2.1%.
Similarly, the core inflation, which excludes the volatile food and energy prices, is expected to come in at 2.3% from the previous 2.4%. Inflation has remained above the BoJ’s target of 2.0%.
Therefore, analysts predict that the BoJ will hike interest rates later this year, a move that will bring the benchmark rate to 1%, the highest level in decades.
Bearish dollar positioning
The USD/JPY exchange rate has also reacted to bearish dollar positioning among investors.
A report released by Bank of America showed that hedge fund bets against the US dollar have soared to the highest level in over a decade, a sign that they expect it to keep falling.
Meanwhile, Austan Goolsbee, the head of the Chicago Fed, believes that the Federal Reserve can deliver several interest rate cuts this year if inflation continues falling. He said:
“I do think that if this proves to be transitory, and we can show that we’re on a path back to 2% inflation, I still think there’s several more rate cuts that can happen in 2026, but we’ve got to see it.”
The statement came a few days after a report released by the Bureau of Labor Statistics showed that the headline Consumer Price Index (CPI) dropped to 2.4% in January, while the core CPI remained unchanged at 2.5% during the month.
The next key catalyst for the pair will be the upcoming Federal Reserve minutes, which will come provide more information about the last meeting.
Additionally, the US will publish more data this week, including the first estimate of the fourth-quarter GDP and the PCE.
USD/JPY technical analysis
USDJPY chart | Source: TradingView
The daily timeframe chart shows that the USD/JPY pair has retreated in the past few weeks, moving from a high of 159.50 earlier this year to the current 153.
It has dropped below the 50-day Exponential Moving Average (EMA).
The pair has formed a bearish flag pattern, which is made up of a vertical line and a channel.
Therefore, the most likely scenario is where it continues falling, potentially to the next key support at 151.97, the 38.2% Fibonacci Retracement level.
A move below that level will point to more downside, potentially to the psychological level at 150.
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