USDJPY influenced by data: How basis points shape the future of the pair

USD/JPY remains in traders’ focus, especially as the key basis points regarding future monetary policy decisions by both central banks will be crucial for its direction. After investors observed weaker-than-expected US data and Japanese indicators below forecasts in recent months, the market now faces the question: how quickly will interest rates actually be cut?

What has changed: The dollar and the market’s rate cut expectations over two years

A few years ago, forecasts predicted about 62 basis points of rate cuts by the Federal Reserve by year’s end — but reality proved more complex. The US dollar yesterday experienced a significant loss after weaker-than-expected ISM Manufacturing PMI data, losing previous gains from the European session. The market remains uncertain as recent employment reports and inflation indicators were disappointing.

The Federal Reserve showed caution regarding December data due to potential disruptions related to government operations. However, looking at the broader picture, investors are uncertain about the future. Previously, it was assumed that rate cuts could begin as early as March, but only if upcoming indicators are particularly weak. Maintaining a trend of worse-than-expected data could increase speculation about further cuts in the coming years, putting additional pressure on the US dollar.

On the other hand, if the economy shows strength, investors might reduce their expectations for policy easing — a scenario most likely to support the dollar and counteract further rate cut expectations.

Japanese Yen still in focus for wage growth

Recent data on prices of goods and services in Tokyo came in below forecasts, although inflation remains above the 2% target set by the Bank of Japan. Despite this, the central bank is not rushing to change its policy. Instead, it focuses on wage dynamics, making upcoming wage reports and the approaching spring negotiations key for the year’s trajectory.

The market currently prices in about 42 basis points of tightening, roughly equivalent to two rate hikes per year. No significant policy moves are expected before June unless wages rise sharply or inflation accelerates notably. In such a scenario, investors might price in earlier hikes.

Technical levels for USDJPY: Multi-timeframe overview

Daily outlook

On the daily chart, a strong support level remains near 154.50, where the price has repeatedly bounced in recent weeks. Buyers may find a favorable risk-reward ratio here, aiming for a move toward 160.00. Bears will wait for a decisive break below this level to target the main trend line at 151.00.

Four-hour outlook

On the four-hour chart, price movements are chaotic and do not offer clear trading points. A slightly rising trend line may serve as support, where buyers enter, aiming for new highs. Sellers, meanwhile, may wait for a break of this trend line to increase short positions toward the 154.50 zone.

Hourly outlook

On the one-hour chart, the pair moves within an expanding wedge pattern. Buyers are likely to use the lower trend line as a starting point for further gains, while sellers may look for a breakout or continue shorting near the upper boundary. The lines marked on the chart indicate today’s average daily trading range.

Economic calendar: Which data will influence basis points

The upcoming days will bring significant releases that could change the pair’s trajectory. On Wednesday, ADP Employment Report, ISM Services PMI, and US job openings data will be released. Thursday will see the latest unemployment claims and Japan’s employment report — the latter especially relevant for the yen.

The week will close on Friday with the Non-Farm Payrolls report, which traditionally causes significant market moves and will influence investors’ expectations regarding further rate cuts by the Federal Reserve.