The Japanese yen has managed to hold steady against the dollar despite the greenback’s recent rally, benefiting from its reputation as a safe-haven currency during market sell-offs. However, this resilience may waver if U.S. inflation data, set to be released later this week, comes in higher than expected, according to analysts from BofA Global Research.
In a recent note, BofA strategists highlighted the potential for the dollar-yen exchange rate (USD/JPY) to rise further if U.S. Consumer Price Index (CPI) data surprises to the upside. They pointed out the pair’s sensitivity to inflation figures, stating that stronger-than-anticipated CPI results could renew upward momentum for the USD/JPY spot rate.
The yen has so far weathered the dollar’s broader strength, supported by its role as a hedge during equity market pullbacks. Additionally, the USD/JPY pair’s current elevated level has helped stabilize the yen. However, the upcoming U.S. CPI report could shift this dynamic, the analysts noted.
BofA expects core CPI, which excludes volatile food and energy prices, to rise by 0.3% month-over-month, slightly above the consensus forecast of 0.2%. The CPI data is scheduled for release on Wednesday and could significantly influence market trends.
BofA’s trend model signals a continuation of the bullish trend for USD/JPY, suggesting more upside potential for the pair. However, the analysts also acknowledged two key risks to their forecast. A downside surprise in the CPI data could dampen the dollar’s momentum, while a potentially hawkish speech from Bank of Japan Deputy Governor Ryozo Himino on Tuesday may bolster the yen.
Himino’s remarks will come just weeks ahead of the Bank of Japan’s policy meeting on January 23-24, adding another layer of uncertainty to the currency pair’s outlook. As markets await these key events, the yen’s near-term trajectory will likely hinge on the interplay between U.S. inflation data and signals from Japan’s central bank.
