Failure to test the February high (114.96) undermines the recent advance in USD/JPY, with the pair at risk of facing further losses over the days ahead as risk sentiment abates; the Nikkei 225 highlights a similar dynamic as the benchmark equity index fails to test the 2017-high (19,698), and the dollar-yen exchange rate may share a similar fate as it struggles to extend the higher highs & lows from the previous week.
Broader outlook for USD/JPY remains constructive as Chair Janet Yellen joins her colleagues and argues a March hike would be ‘appropriate,’ with Fed Fund Futures pricing a greater than 80% probability for a move at the March 15 interest rate decision; however, the fresh updates coming out of the Federal Reserve may dampen the appeal of the greenback should central bank officials show a further reduction in the long-run Fed Fund forecast.
Nevertheless, the Bank of Japan (BoJ) is likely to endorse a dovish outlook at its March 16 rate decision as the central bank remains far from achieving its 2% target for inflation, but more of the same from Governor Haruhiko Kuroda and Co. may have a limited impact on the local currency as the central bank continues to pursue its Quantitative and Qualitative Easing (QQE) program with Yield-Curve Control.
With USD/JPY still capped by the Fibonacci overlap around 114.00 (23.6% retracement) to 114.30 (23.6% retracement), downside targets will be in focus over the coming days, with the first region of interest coming in around 113.10 (78.6% retracement) followed by 112.40 (61.8% retracement) to 112.50 (38.2% retracement).
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