**Original Source:** Mitrade News | Author: Arno Venter
**Title:** Analysis: USD/JPY Extends Rally Toward 160.00 as U.S. CPI Sparks Dollar Surge
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The USD/JPY currency pair has recently embarked on a renewed bullish trajectory, surging toward the psychologically significant 160.00 level following the latest U.S. inflation data. Investors and traders are reacting to updated macroeconomic variables and deep shifts in market sentiment. This article examines the drivers behind the latest USD/JPY rally, market expectations, technical analysis, and potential outcomes as the Federal Reserve’s policy path becomes increasingly uncertain.
## Key Drivers Behind USD/JPY’s Rally
The performance of USD/JPY is closely tied to economic indicators from both the United States and Japan, as well as monetary policy stances from the Federal Reserve and the Bank of Japan (BoJ). Several core factors have amplified the pair’s upward momentum:
### U.S. Consumer Price Index (CPI) Data Fuels Dollar Strength
– The U.S. Bureau of Labor Statistics recently released CPI data indicating an annual inflation rate above economists’ expectations.
– Headline CPI rose by 3.4% year-over-year in the latest report.
– Core inflation (excluding food and energy) also exceeded projections, solidifying the view that price pressures remain persistent.
The unexpectedly robust inflation numbers led market participants to scale back expectations for imminent Federal Reserve rate cuts. Higher than anticipated inflation typically leads traders to favor the U.S. dollar, as the yield advantage for greenback-denominated assets persists.
### Federal Reserve Sticking to Hawkish Tone
– Federal Reserve officials, including Chair Jerome Powell, have consistently signaled a “data-dependent” approach to monetary policy.
– Recent statements from FOMC members reflect a cautious outlook, with little rush to reduce interest rates in the face of sticky inflation.
The market’s repricing of the Fed rate trajectory has led to increased demand for the dollar, especially against currencies like the Japanese yen, whose central bank continues to pursue ultra-loose policy measures.
### Divergence Between Fed and BoJ Policies
– The Fed maintains the highest policy rates among major central banks, while the BoJ remains at negative or near-zero interest rates.
– This policy split drives carry-trade flows, whereby global investors borrow low-yielding yen to invest in higher-yielding U.S. assets.
Consequently, the widening interest rate differential places heavy downside pressure on the yen, underpinning USD/JPY strength.
## Market Reaction and Current Trends
Following the release of the latest CPI figures, the USD/JPY soared from the mid-158.00s to test the 159.50-160.00 area, with price action providing little evidence of immediate reversal. This surge underscores ongoing bullish market sentiment for the pair.
### Key Market Observations
– Dollar Index (DXY), which measures USD against a basket of six major currencies, spiked above 105, further highlighting greenback demand.
– Japanese government bond yields have remained largely static, reflecting BoJ’s reluctance to tighten.
– Speculator net-long positions in USD/JPY futures have increased in recent sessions as risk appetite for the pair grows.
In summary, the confluence of persistent U.S. inflation, a hawkish Fed, and a dovish BoJ has created fertile ground for yen depreciation against the dollar.
## Technical Analysis: Paving the Path to 160.00 and Beyond
USD/JPY’s technical landscape reinforces the fundamentally-driven bullish trend, with several chart signals suggesting continued upside risks.
**Daily Chart Overview**
– The pair trades comfortably above its 50-day and 200-day moving averages, indicating entrenched bullish momentum.
– Relative Strength Index (RSI) is edging into overbought territory but has yet to produce a clear reversal signal.
**Key Technical Levels to Watch**
– Immediate resistance stands at 159.90-160.00. If broken, this opens
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