USD/JPY stable below 150.00 intervention level after Japan National CPI release

• USD/JPY has attracted some buying at lower levels on Friday, although it lacks follow-through.
• The divergence between the monetary policies of the Bank of Japan and the Fed turns out to be a key factor that acts as a tailwind for the pair.
• The risk aversion sentiment benefits the Yen amid fears of intervention, which limits the pair’s rise.

The USD/JPY pair moves higher at the start of the European session on Friday, reversing some of the previous day’s modest pullback from near the psychological level of 150.00, two-week highs. The pair is currently hovering around the 149.80-149.85 zone, although it lacks significant buying.

The Japanese Yen (JPY) continues its relative underperformance following the dovish stance of the Bank of Japan (BoJ) and turns out to be a key factor acting as a tailwind for the USD/JPY pair. Indeed, the BoJ is clinging to its view that inflation is transitory and has no plans to gradually withdraw its massive monetary stimulus. In contrast, Federal Reserve (Fed) Chairman Jerome Powell declared on Thursday that inflation remained too high and would likely require lower economic growth.

Powell also added that monetary policy was not yet too tight, keeping the yield on the benchmark 10-year US government bond elevated, close to the 5% threshold, or a 16-year high hit the previous day. This, in turn, continues to support the US Dollar (USD) and lend additional support to the USD/JPY pair. That said, speculation that Japan will intervene in the currency market to combat a sustained depreciation of the Yen limits the pair’s gains.

Apart from this, the risk-off environment benefits the safe-haven JPY and contributes to limiting the USD/JPY pair. For its part, the pair has moved little after the publication of the latest consumer inflation figures from Japan, which showed that the headline CPI fell from a year-on-year rate of 3.2% to 3% in September. Additionally, the national core CPI, which excludes fresh food price volatility, fell below the 3% level for the first time in 13 months.

That said, most of the decline was due to public subsidies on electricity and gas prices, which were put in place earlier this year. On the other hand, core inflation, which excludes the prices of fresh food and fuel, remains close to its maximum level in the last 40 years and stood at a year-on-year rate of 4.2% during the reported month. This suggests that core inflation remains elevated and warrants some action by the BoJ, although it does not provide any boost to the JPY or the USD/JPY pair.

No relevant economic data will be published in the United States on Friday. Therefore, investors will be guided by the speeches of influential FOMC members, which, together with US bond yields, will influence the USD price dynamics and provide some boost to USD/JPY. Apart from this, the broader risk sentiment could help generate short-term opportunities on the last day of the week.

Technical levels to monitor