Ella 
In early Asian trading on Monday, USD/JPY remained strong and was above the 145.00 mark. USD/JPY rebounded despite a decline in the US dollar (USD). Markets are likely to be quiet during the U.S. bank holiday. As of press time, USD/JPY was trading at 145.06, up 0.12% throughout the day.
The U.S. producer price index (PPI) unexpectedly fell in December, raising the possibility that the Federal Reserve (Fed) will start cutting interest rates this year. The market has priced in an 86% probability of a rate cut before March, with the Fed expected to cut interest rates by 166 basis points (bps) overall in 2024, while the Fed dot plot predicts 75 basis points. This may therefore halt the upside for USD/JPY.
Japan’s two-year bond yield fell back into negative territory for the first time since July 2023. On Friday, a report said that the Bank of Japan (BOJ) may lower its core inflation forecast for fiscal 2024 (currently 2.8%) amid the recent decline in oil prices. Additionally, the Bank of Japan is expected to maintain its forecast that trend inflation will remain near its 2% target in the coming years despite uncertainties in the global economy and sluggish consumption. The forecast will be part of the Bank of Japan’s quarterly outlook report when it conducts its next rate review on Jan. 22-23. The Bank of Japan’s board of directors is widely expected to maintain its ultra-loose policy regime.
Looking ahead, Japan’s core machinery orders will be announced on Thursday. However, this secondary data may not have an impact on the market. Later this week, Japan’s producer price index and the U.S. New York Empire State manufacturing index will be released on Tuesday. U.S. retail sales will be released on Wednesday. Traders will look to this data for USD/JPY trading opportunities.
