The USD/JPY pair fell during intraday trading after Bank of Japan Governor Ueda warned about rising food inflation risks. Japan’s core inflation reached 3.5% in April, marking its fastest annual increase in over two years, mainly driven by a 7% rise in food prices.
The pair last traded near 143.83, according to OCBC FX analysts Frances Cheung and Christopher Wong.
Downside Risks Persist Despite Policy Normalization Hopes
The hotter-than-expected inflation data keeps hopes alive for a BoJ rate hike. Analysts believe that wage growth, increased services inflation, and strong economic activity in Japan will support the BoJ’s plan to normalize policy. However, uncertainty around tariffs may delay this process temporarily.
Although the timing of policy normalization may be pushed back, it is unlikely to be abandoned.
The divergence between Fed and BoJ policies, combined with a trend toward USD diversification, should continue to push USD/JPY lower over the medium term.
Technically, daily momentum is mildly bearish, with the Relative Strength Index (RSI) declining. Support levels are at 142, 141.60, and then 139.90, the recent low in April.
Resistance is expected at 144.40/60 and 145.70, corresponding to key moving averages and Fibonacci retracement levels.
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