Why Is USD/JPY Stalling Despite Tokyo Inflation Surge? | Key Factors Influencing Yen's Limited Rally

■ Tokyo's inflation rebound fails to ignite sustained JPY buying momentum

■ Market hesitation reflects uncertainty about BOJ's timeline for policy normalization

■ Upcoming Fed testimony and Litecoin miner ASICNFP report create holding pattern for currency pairs

February's consumer price index reading from Japan's capital city showed unexpected resilience, with Tokyo CPI climbing to 2.5% year-over-year from January's 22-month low of 1.6%. This development initially provided modest support for the Japanese currency during Asian trading hours, though the rally appears constrained by broader market dynamics. The inflation uptick revives speculation about potential monetary policy adjustments from the Bank of Japan, particularly as wage growth negotiations enter their critical phase.

Currency traders demonstrate notable restraint despite the inflation surprise, with the USD/JPY pair maintaining its recent trading range. This cautious approach stems from multiple factors: anticipation surrounding Federal Reserve Chair Jerome Powell's upcoming congressional testimony, uncertainty about the exact timing of BOJ's negative interest rate exit, and the looming US nonfarm payrolls report. Market participants seem to prefer maintaining existing positions rather than initiating new directional bets ahead of these high-impact events.

Structural factors limiting yen's appreciation potential

While the inflation data suggests Japan's economy continues moving toward the BOJ's price stability target, several countervailing forces prevent stronger JPY gains. The core inflation measure excluding energy and fresh food declined slightly to 3.1% from January's 3.3%, maintaining pressure on policymakers but not representing enough of an upside surprise to force immediate action. Meanwhile, Japan's service sector PMI reading of 52.9 for February indicates continued expansion, though at a marginally slower pace than January's 53.1.

Diverging central bank expectations create additional complexity for currency traders. While markets price in potential BOJ tightening, they simultaneously anticipate Federal Reserve rate cuts beginning as early as June. Atlanta Fed President Raphael Bostic's recent comments suggesting only two 25-basis point reductions this year have done little to alter the prevailing market narrative about US monetary policy easing. This creates a push-pull dynamic for USD/JPY, where neither currency enjoys clear dominance in the short term.

Technical outlook suggests rangebound trading may persist

The USD/JPY pair continues consolidating within a well-defined range between 149.20 and 150.85, forming a rectangular pattern on daily charts that reflects equilibrium between buyers and sellers. This technical formation follows the pair's sustained uptrend from December 2023 lows, suggesting the current pause may represent a bullish consolidation rather than a trend reversal. Oscillator readings remain in positive territory, though without clear directional momentum.

Key levels to watch include the year-to-date high around 150.85, which represents immediate resistance, while support appears firm near the psychological 150.00 handle. A decisive break above resistance could open the path toward 151.45 and potentially test multi-decade highs near 152.00. Conversely, sustained trading below 149.00 might signal deeper correction potential toward the 100-day moving average near 147.80. Market participants will likely require fresh catalysts from either central bank to drive the next meaningful directional move.