USD/JPY forecast as BoJ core inflation surprisingly pulls back

The USD/JPY exchange rate drifted downwards on Tuesday after Japan downgraded its Covid measures. It also slipped after Japan published the latest core inflation data. The pair dropped to a low of 130.58, which was ~5.30% below the highest point this month.

Flight to safety

The Japanese yen has had a strong performance in March, buoyed by the relatively high safe-haven demand. This price action happened after the collapse of Silicon Valley Bank (SVB) and Signature Bank in the United States. Credit Suisse, a systematically important bank, also collapsed during the month.,

The Japanese yen, together with the Swiss franc and the US dollar, are widely viewed as safe havens in times of elevated risks. This week, there is a sense that the banking crisis is ending after Citizens Bank decided to acquire SVB. 

The most important risk is related to geopolitics. During the weekend, Russia announced that it will move some of its tactical nuclear missiles to Belarus. And on Monday, the country tested supersonic missiles in the Sea of Japan. 

There are also geopolitical tensions between the US and China. Last week, TikTok’s CEO was grilled in Washington, where many officials have become critical of the app. As we wrote here, there are concerns that the app will be banned in the US.

The other crucial forex news was the latest Japan inflation data. According to the statistics agency, Bank of Japan’s core CPI dropped from 3.1% to 2.7% in February. This inflation figure remains above BoJ’s target of 2.0%.

The next key catalyst for the pair will be the upcoming US consumer confidence data scheduled for Tuesday. With inflation being sticky, analysts believe that confidence dropped to about 101 in March. Consumer confidence is an important figure because it has an impact on Fed actions. 

USD/JPY technical analysis

USD/JPY chart by TradingView

The 4H chart shows that the USD/JPY pair has been in a downward trend in the past few days. It has formed a descending channel and is now slightly below the upper side. The USD to JPY has moved slightly below the 25-day and 50-day moving averages while the Stochastic Oscillator has moved below the neutral point.

Further, the pair has dropped below the 78.6% Fibonacci Retracement level and is now at the oversold level of the Murrey Math Lines. Therefore, it will likely continue falling as sellers target the key support at 129.48.