USD/JPY gathered bullish momentum and climbed above 136.00 on Friday, with the pair on track to post its highest weekly close since early December. The data from the US showed that PCE inflation rose at a stronger pace than expected in January, fuelling the US Dollar rally and pushing the US Dollar Index above 105.00. Meanwhile, the benchmark 10-year US Treasury bond yield climbed to 3.95%, adding additional weight on USD/JPY’s shoulders.
The pair had spent the European trading hours near 135.00, before gathering bullish momentum in the early American session and reaching its highest level since December 20 at 136.46. As of writing, the pair was trading at 136.30, where it was up 1.2% on a daily basis.
Earlier in the day, incoming Bank of Japan Governor Kazuo Ueda said that a weak Japanese Yen would support exports, inbound tourism and some service sectors. Ueda added that they would need to normalize the monetary policy if inflation makes headway toward 2%. Since the data from Japan revealed that the National Core CPI edged higher to 4.2% on a yearly basis in January from 4% in December, these comments failed to help the Yen gather strength.
The US Bureau of Economic Analysis reported that the annual Personal Consumption Expenditures (PCE) Price Index rose to 5.4% in January from 5.3% in December (revised from 5%). Additionally, the Core PCE Price Index, the Fed’s preferred gauge of inflation, rose 0.6% on a monthly basis and lifted the annual rate to 4.7% from 4.6%. This positive inflation data helped the US Dollar rally, pushing the US Dollar Index above 105.00 for the first time since early January.
The benchmark 10-year US Treasury bond yield also climbed to 3.95% following Thursday’s slide, adding further weight on USD/JPY’s shoulders. The pair is on track to post its highest weekly close since early December, with technical analysts expecting the bullish momentum to continue.
If the pair manages to break above the 136.50 resistance level, the next target could be the 137.00 psychological level. On the downside, the 135.50 level could limit the pair’s losses in the near term. However, a break below this level could signal a deeper pullback toward the 135.00 support level.
In conclusion, the bullish momentum in USD/JPY is likely to continue in the near term, with the PCE inflation data from the US and the benchmark 10-year US Treasury bond yield providing additional support. However, a break below the 135.50 level could signal a deeper pullback in the pair.
