USD/JPY Targeting 150 After Strong US Jobs and Hawkish FED

USD/JPY made quite a comeback in January from 140.30s, as USD buyers returned to the scene, however we saw a dip in the last week, ahead of the FOMC as markets were expecting some dovish outcome. But, a hawkish Powell, strong US jobs and upbeat corporation earnings from US companies have boosted this pair, which remains solid on an uptrend.

This forex pair was displaying a strong bullish momentum until the end of last week, with Q4 GDP showing a 3.3% expansion rather than the expected 2.0%, which strengthened the buying pressure further. The strong data showing an upbeat economy in the US continued this week as well, with the Conference Board Consumer Confidence and JOLTS jobs openings all surprising to the upside.

On Wednesday, the FOMC meeting leaned on the hawkish side, the opposite of what the market was expecting, hinting at May for the first rate cut instead. On Friday, we had a great employment report from the Non-Farm Payrolls (NFP), showing a 353K jump in January, while Decemeber was revised much higher at 333K from 216K in the previous reading. Despite that, earnings jumped by 0.6% last month, as employers hike wages and salaries to compensate for the enormous inflation of the last two years.

So, most of the reports from the US  have been solid, which signals a stronger US economy, while the FED is keeping rates higher-for-longer. This boosted the US dollar on Friday and will likely keep the USD bullish next week as well, putting upward pressure on the USD/JPY currency pair.

In contrast, Japanese economic statistics remain weak, showing that the economy is not experiencing a bounce, instead it is still on a downward trajectory. The inflation report showed that Tokyo Core CPI came at 1.6% year-on-year for December, way below expectations which circled around 1.9% and the November reading of 2.1%.

This week, retail sales and industrial production reports missed expectations while Housing Starts remained negative at 4.4% for December, showing that the building sector is still contracting, as is manufacturing activity. This disparity in economic health between the two nations reinforces the optimistic attitude surrounding this pair, so the Bank of Japan might take a less aggressive approach toward tightening.

USD/JPY was encountering resistance at 148.70-80 last week and it retreated around 250 pips lower early this week, but sellers ran into the 50 SMA (yellow) on the daily chart, which held as support. The price bounced off this moving average on Friday and pushed above the 100 daily SMA (green). However the price stopped at last week’s high, so we’ll see if the bullish momentum from Friday will spill into next week.