USD/JPY Price Forecast: 154.00 mark could act as a strong barrier ahead of US CPI

• USD/JPY scales higher for the third consecutive day amid worries about Trump’s trade tariffs.
• Fed’s hawkish outlook revives the USD demand and further lends support to the USD/JPY pair.
• BoJ rate hike bets should limit JPY losses and cap the major ahead of the crucial US CPI report.

The USD/JPY pair prolongs its weekly uptrend for the third straight day and rallies to a one-week top, around the 153.70-153.75 region on Wednesday amid the heavily offered tone surrounding the Japanese Yen (JPY). US President Donald Trump signed executive orders on Monday, imposing a flat 25% tariff on steel and aluminum imports, "without exceptions or exemptions". Furthermore, Trump promised reciprocal tariffs to match the levies other countries charge on US products. Meanwhile, Japan's Finance Minister, Katsunobu Kato said that the government will assess the impact of US tariffs on the domestic economy and respond appropriately. This raises the risk of a further escalation of trade tensions, which could negatively affect the Japanese economy. Adding to this, a generally positive risk tone turns out to be another factor that contributes to driving flows away from the safe-haven Japanese Yen (JPY). 

The US Dollar (USD), on the other hand, attracts some dip-buyers in reaction to Federal Reserve (Fed) Chair Jerome Powell's hawkish remarks on Tuesday, which, in turn, provides an additional boost to the USD/JPY pair. During his testimony before the Senate Banking Committee, Powell called the economy strong overall with a solid labor market and added that inflation is closer to the 2% goal but still somewhat elevated. Furthermore, Powell reaffirmed the Fed's cautious stance on interest rates, which, in turn, helps revive the USD demand. The markets, however, have fully priced in one quarter-point rate cut by the Fed this year. This marks a big divergence in comparison to the Bank of Japan (BoJ) rate-hike plans, which could offer support to the JPY and cap the currency pair. In fact, BoJ Governor Kazuo Ueda reiterated that the central bank will conduct monetary policy appropriately in order to achieve the 2% inflation target. 

This, in turn, warrants some caution before positioning for an extension of the USD/JPY pair's recent recovery from sub-151.00 levels, or a near two-month low touched last Friday. Traders might also refrain from placing aggressive directional bets and opt to wait for the release of the latest US consumer inflation figures, due later during the early North American session. The headline Consumer Price Index (CPI) is expected to rise 0.3% MoM in January, slightly lower than the 0.4% rise recorded in the previous month. The yearly rate, however, is seen holding steady at around 2.9%. Meanwhile, the core gauge, which excludes volatile food and energy prices, is forecast to rise 0.3% and 3.1% on a monthly and yearly basis, respectively. The crucial CPI data will play a key role in influencing market expectations for the Fed's rate-cut path, which will drive the USD demand in the near term and provide some meaningful impetus to the currency pair.

USD/JPY daily chart

Technical Outlook

From a technical perspective, a sustained breakout above the 152.75 confluence hurdle could be seen as a key trigger for bullish traders and support prospects for a further intraday appreciating move. The said area comprises the 23.6% Fibonacci retracement level of the January-February decline and the 200-day Simple Moving Averages (SMA), which, in turn, should now act as a key pivotal point for the USD/JPY pair. 

Meanwhile, oscillators on the daily chart – though they have been recovering – are still holding in negative territory. This suggests that any subsequent move-up is likely to attract fresh sellers and remain capped near the 154.00 mark. The latter coincides with the 38.2% Fibo. level, above which the USD/JPY pair could accelerate the recovery towards the 154.70-154.75 region en route to the 155.00 psychological mark. 

On the flip side, any meaningful corrective slide now seems to find some support near the 153.00 round figure. This is closely followed by the confluence resistance breakpoint, around the 152.75 region, below which the USD/JPY pair could accelerate the fall towards the 152.00 mark. The downward trajectory could extend further towards the 151.30-151.25 region en route to sub-151.00 levels, or a near two-month low touched last Friday.