Japan's "Black Swan" encounters a negative surprise! PPI proves that the "turning point" may be delayed, will the USD/JPY bullish opportunity increase?

In the Asian market on Tuesday (December 12), USD/JPY maintained a long position near 145.60, after the previous surge in the yen has been significantly digested. The Bank of Japan’s bets on exiting its ultra-loose policy are facing challenges from the latest Japanese data. Japan’s producer price index (PPI) growth has slowed for 11 consecutive months, which means that the Bank of Japan may delay the “black swan” shift to ultra-loose policy. event. Looking ahead to the market outlook, the U.S. Consumer Price Index (CPI) will be released, and the Federal Reserve decision will become the focus. In view of last week's outstanding non-agricultural performance, traders need to be cautious about the hawks attacking again.

The latest data shows that Japan's PPI rose 0.3% in November from a year earlier, which was the weakest growth rate since February 2021, when the index fell 0.9%. November is the 11th consecutive month that growth has slowed. Economists predict growth of 0.1% and prices rising 0.2% from October, in line with market consensus.

Japan's PPI growth was lower than the latest CPI data for the third consecutive month. In October, the CPI increase excluding fresh food rose slightly to 2.9%. November CPI data will be released on December 22. The continued slowdown in the index this year is consistent with the Bank of Japan's view that price pressures are cooling, with inflation in Tokyo, a leading indicator of national trends, weakening in November to its lowest level in more than a year.

Most economists expect the BOJ to remain unchanged at its board meeting ending on December 19, with 50% of respondents to a Bloomberg survey predicting that the authorities will cancel the negative interest rate policy in April 2024.

Later on Tuesday, the U.S. CPI report will take center stage. Sticky inflation could force the Fed to keep interest rates at current levels. The Federal Reserve's hawkish interest rate path has led to higher borrowing costs, reducing disposable income. The downward trend in disposable income affects consumer spending and curbs demand-driven inflationary pressures.

It's worth noting that the CPI report was released ahead of Wednesday's Federal Open Market Committee (FOMC) interest rate decision, forecasts and press conference. The inflation data could influence forecasts, as well as Federal Reserve Chairman Jerome Powell's views on rate cut discussions.

Economists predict that U.S. inflation will fall to 3.1% in November from 3.2%, however, economists expect core inflation to remain at 4.0%.

On the short-term outlook, the near-term trend of USD/JPY will depend on the CPI report and the Federal Reserve. The weak macroeconomic background has increased the uncertainty of the Bank of Japan's move away from negative interest rates, and high U.S. inflation may force the Federal Reserve to maintain a hawkish interest rate path, tilting policy differences toward the dollar.

USD/JPY technical analysis

FXEmpire analyst Bob Mason said that on the daily chart, USD/JPY is below the 50-day moving average while remaining above the 200-day moving average, confirming the recent bearish but long-term bullish price signal.

A break above the 146.649 resistance in USD/JPY will bring the trend line into play.

However, a break below the 146 mark would support a fall to the 144.713 support level.

The 14-day RSI is at 41.20, indicating that USD/JPY fell to the 144.713 support before entering oversold territory.

 

On the 4-hour chart, USD/JPY remains below its 50- and 200-day moving averages, reiterating a bearish price signal.

A break above the 50-day EMA and 146.640 resistance in USD/JPY will support a move towards the trendline.

However, a break below the 146 mark will allow the bears to run towards the 144.713 support.

The 14-period 4-hour RSI is at 53.48, indicating that USD/JPY is breaking above the trendline before entering overbought territory.