USDJPY Will the BOJ raise the rates?

1月21日

The USD/JPY exchange rate finds support near 148.00 as bets in favor of a Federal Reserve (Fed) decision to cut interest rates are gradually diminishing. Weak inflation data could lead the Bank of Japan (BoJ) to postpone its plans to exit from accommodative monetary policy. According to the CME Fedwatch tool, traders see a 53% probability of a 25 basis points interest rate cut in March, lower than the 70% from the previous week. The U.S. Dollar Index shows a clear contraction in volatility due to the absence of significant economic indicators. 10-year U.S. Treasury yields are hovering near 4.13%. The argument for maintaining interest rates at restrictive levels will be supported by persistent price pressures, steady labor demand, and robust consumer spending. Meanwhile, producers at factory gates are struggling to raise prices for goods and services due to weak demand. Additionally, the national Consumer Price Index (CPI) data for December slowed to 3.7% compared to the previous reading of 3.6%. Inflation data excluding fresh foods also softened to 2.3%, in line with expectations, compared to the previous reading of 2.5%. I primarily anticipate two scenarios: in the first, the BoJ will raise rates, and the market is likely to decline to seek liquidity around the 134-144 level, where there is a significant concentration of demand and the 0.62% Fib. Level. In the second scenario, if the BoJ doesn't change rates, it is more likely that the market will rise to touch the upper side of the bullish channel. Greetings and a good start to the week to everyone.