USD/JPY bears flirt with 131.00 on hawkish BOJ concerns, Fed Minutes, US NFP in focus

• USD/JPY remains depressed near the multiday low even as market’s inaction probes bears.
• Chatters surrounding BOJ’s upward revision to inflation forecasts favor bears.
• US Dollar begins 2023 on a back foot after posting the biggest yearly gains since 2015.

USD/JPY licks its wounds near 131.00 as bears try to keep the reins during Monday’s sluggish session, mainly due to the New Year holidays in multiple markets including Japan. Even so, the Yen pair stays pressured at the lowest levels since August 2022, poked in the last month, amid hawkish concerns surrounding the Bank of Japan (BOJ).

Late on Friday, Nikkei Asia quotes anonymous sources to mention that the BOJ is considering raising its inflation forecasts in January to show price growth close to its 2% target in fiscal 2023 and 2024. “The proposed changes would show the core consumer price index rising around 3% in fiscal 2022, between 1.6% and 2% in fiscal 2023, and nearly 2% in fiscal 2024,” added the news.

Given the hopes of a strong BOJ inflation forecast, coupled with the latest tweak in the Yield Curve Control (YCC) policy, not to forget the Japanese central bank’s multiple market interventions in the last few days, the USD/JPY bears have more to cheer.

On the other hand, downbeat US data and an absence of Fedspeak weighed on the US Dollar Index (DXY). That said, Chicago Purchasing Managers’ Index crossed the market consensus of 41.2 and the 37.2 previous readings to print the 44.9 figures for December. Even so, the activity gauge signaled contraction for the fourth consecutive month. It should be noted that the year-end consolidation also exerted downside pressure on the DXY amid the sluggish sessions.

Against this backdrop, Wall Street closed with losses while the US 10-year Treasury bond yields rose 4.5 basis points (bps) to 3.879%, which in turn tried to challenge the USD/JPY bears, but could not.

Moving on, a lack of major data/events and the New Year holidays may restrict the USD/JPY pair’s intraday moves. However, Wednesday’s Minutes of the latest Federal Open Market Committee (FOMC) meeting, as well as Friday’s December month employment numbers for the US, will be crucial for the pair traders to watch as the bears seem running out of steam late, mainly due to the BOJ policymakers’ defense of the easy-money policies.

Technical analysis

Unless crossing a downward-sloping resistance line from late October, around 133.55 by the press time, the USD/JPY pair is likely to remain on the bear’s radar.