The USD/JPY pair is staging a strong recovery, climbing nearly 150 points from the 149.30-149.25 level, the lowest since December 3. The rebound comes as the Japanese yen weakens following comments from Bank of Japan (BoJ) Governor Kazuo Ueda, who expressed readiness to increase government bond purchases if long-term interest rates rise sharply. These remarks led to a decline in Japanese Government Bond (JGB) yields, triggering broad yen selling.

Additionally, moderate US dollar strength is supporting USD/JPY's recovery. However, a weaker-than-expected sales outlook from Walmart has raised concerns about US consumer health, while fears that policy measures from US President Donald Trump could fuel inflation and hurt consumer spending are capping further dollar gains.

At the same time, rising expectations of a BoJ rate hike, reinforced by strong Japanese CPI data released today, could prevent aggressive yen selling and thus limit the pair's upward potential. Japan's core national CPI rose to a two-year high of 4.0% y/y in January, up from the previous 3.6%, highlighting intensifying inflationary pressures. Coupled with BoJ policymakers' comments on the need for monetary policy adjustments, this suggests that the BoJ may tighten rates more aggressively than previously anticipated.

Technical Outlook

Yesterday's sustained break below the 151.00-150.90 level was seen as a new bearish trigger. Furthermore, daily chart oscillators remain deeply in negative territory, far from oversold conditions, reinforcing the view that the path of least resistance for USD/JPY remains to the downside. This suggests that any further upward movement is likely to encounter strong resistance near the aforementioned zone.

However, short-term buying interest could spark a short-covering rally, potentially lifting USD/JPY to the 151.45 intermediate level and possibly the psychological 152.00 mark. Nonetheless, any further gains are expected to be capped around 152.70, near the 200-day Simple Moving Average (SMA). A break above this level would shift the bias in favor of bulls.

On the other hand, the psychological 150.00 level now serves as immediate support, followed by 149.60. A decisive break below the multi-month support at 149.30-149.25 could accelerate declines towards 149.00, with the next major target being 148.65, the December 2024 low.