The USD/JPY pair came close to the resistance level of 142.50 today, which is the upper line of the Bollinger Bands indicator on the four-hour, daily, and weekly charts. Traders reacted to the May report on inflation growth in Japan, which turned out to be contradictory but overall reflected a slowdown in Japan's inflation.
In response to the publication, the pair reached a 7-month price high but failed to test the key price barrier at 142.50. The upward trend was hindered by the greenback, which cannot determine its direction. Initially, Fed Chairman Jerome Powell exerted pressure on the American currency: the U.S. dollar index plummeted to the 101.50 level (a 6-week low) in response to his dovish comments. However, risk aversion sentiments later increased in the market, partially restoring the greenback's positions. The USD/JPY pair found itself between a rock and a hard place: on one hand, there was the report on Japanese inflation growth, and on the other hand, the contradictory greenback. As a result, both sellers and buyers showed indecisiveness, causing the pair to get stuck in a narrow price range.
Speaking in terms of numbers
Overall, the inflation report is not in favor of the yen. For example, it became known that the overall consumer price index in May decreased to 3.2%, contrary to the forecasted growth of 4.1%. For comparison, in January of this year, the indicator was at 4.3% YoY. The consumer price index, excluding fresh food prices, also demonstrated a downward trend but remained in the green zone: with a forecast decline to 3.1%, the indicator slowed down to 3.2% (from 3.4% in April).
This result allows the Bank of Japan to continue implementing its ultra-loose monetary policy and not rush with the adjustment of its yield curve control program. Recall that the previous meeting of the Japanese regulator ended up putting pressure on the yen. BoJ Governor Kazuo Ueda reiterated the April thesis about the central bank's readiness to review its ultra-loose policy (the April meeting mentioned indicative calibration periods ranging from 12 to 18 months). However, he emphasized that all changes would occur very smoothly and gradually. In June, Ueda hinted that the Japanese regulator would use the entire declared 18-month period for the policy review, and the first changes of a verbal nature (i.e., changes in the central bank's rhetoric) would appear closer to late autumn.
It is also worth noting that the tone of the accompanying statement of the June meeting was optimistic. The central bank indicated that the Japanese economy is gradually picking up steam and will continue its moderate recovery, while inflation will slow its pace of growth by the middle of the current fiscal year (which began in April). During the final press conference, Ueda expressed confidence once again that inflation would decline, including overall inflation, whose growth is driven by "external factors and rising costs" and therefore cannot be controlled by monetary policy.
As we can see, based on the results of May, the consumer price index demonstrated a downward trend, thus confirming the assumptions of the head of the Japanese regulator.
What the data indicates
All this suggests that the Fed and BoJ exchange rate misalignment will continue, at least in the coming months. Fed Chair Powell indicated that the current cycle of monetary policy tightening is nearing its completion, but the pause in June is not "the end." According to him, almost all members of the Committee are ready to move the rate further from the current level by implementing one ("or two") increases this year.
Meanwhile, BoJ's Ueda, essentially echoes the rhetoric of his predecessor. For example, the day before yesterday, he stated that the central bank will "patiently maintain accommodative monetary policy." Today's published inflation report allows for exercising such patience for an extended period of time.
Therefore, it is likely that the upward trend for the USD/JPY pair has not exhausted itself, despite the shaky positions of the American currency. The divergence between the Federal Reserve and the Bank of Japan will continue to work against the yen. In the current fundamental conditions, it is advisable to use downward price pullbacks to open long positions.
The technical analysis also indicates the priority of the upward scenario. On all "higher" timeframes (from H4 and above), the pair is either on the upper line or between the middle and upper lines of the Bollinger Bands indicator. In addition, on the D1 timeframe, the Ichimoku indicator has formed one of its strongest bullish signals, the "Parade of Lines." The immediate target of the downward movement is the level of 143.50, which is the lower line of the Bollinger Bands on the four-hour (and simultaneously on the daily and weekly) chart. The main target is the 144.00 mark.