USD/JPY squeezes around 134.70 post-Bank of Japan Ueda’s speech-inspired volatility

• USD/JPY is showing a volatility squeeze after some wild moves post-speech from BoJ Governor Nominee Kazuo Ueda.
• Bank of Japan Ueda considered the current monetary policy as appropriate for achieving the persistent 2% inflation target.
• Federal Reserve to continue policy tightening spell as upbeat US labor market could propel inflation ahead.
• USD/JPY is auctioning in a Rising Wedge which indicates a loss in the upside momentum and cements a bearish reversal.

USD/JPY remained in vigorous action in the Asian session as Bank of Japan (BoJ) Governor Nominee Kazuo Ueda delivered his first speech after his selection. The asset displayed wild gyrations in the 70-pips range and returned to its mean. The major has turned sideways as a volatility expansion is generally followed by a contraction in the same.

At the time of writing, the pair is demonstrating a back-and-forth action around 134.70 and is expected to continue to remain sideways till the release of the United States Personal Consumption Expenditure (PCE) Price Index for fresh impetus.

The US Dollar Index (DXY) is struggling to find a decisive move as investors have shifted to the sidelines ahead of the US PCE data. S&P500 futures have turned volatile amid dubious gestures from the Chinese government toward the ongoing Russia-Ukraine war. The war situation between Russia and Ukraine has entered in the second year and the street is expecting some bold moves from Russia, which could accelerate geopolitical tensions further.

Earlier, the United States and Germany warned Beijing not to deliver weapons to Russia, as reported by DER SPIEGEL. The warning from the US and Germany came after the headlines of negotiations between China and Russia for the purchase of 100 strike drones by Moscow.

Bank of Japan Ueda cites current monetary policy as appropriate

The street was keenly awaiting the speech from BoJ Ueda as the Japanese administration promised that the government will consider an exit from the decade-long expansionary monetary policy with the novel Bank of Japan’s leadership. Bank of Japan Ueda cleared that the decade-high inflation is backed by higher import prices and has nothing to do with the domestic demand and labor cost index, which are extremely weak. Bank of Japan Ueda cited the current policy easing as appropriate to achieve pre-pandemic growth levels.

Apart from that, the Bank of Japan Ueda cited that the central bank will look for normalization of the stimulant monetary policy after confidently achieving the 2% inflation target. The BoJ Kuroda successor refrained from discussing specifics of the Yield Conversion Control (YCC) for now.

Investors should be aware that the Bank of Japan stretched the YCC on the Japanese Government Bonds (JGBs) to 0.5% from above and below zero in its December monetary policy.

Context of a pause in Federal Reserve’s policy tightening spell looks over

After a quarter of sheer inflation softening in the United States, the street started anticipating that the Federal Reserve (Fed) would pause the rate hike cycle for a while and would allow the current monetary policy to tame the stubborn inflation. However, the US inflation turned out to be extremely persistent and started showing its true colors.

The US Consumer Price Index (CPI) looks set to rebound after a declining spell led by the tight labor market and a solid revival in consumer spending. The upbeat labor market is characterized by declining jobless claims, multi-decade lowest Unemployment Rate, and rising demand for fresh talent if we sideline some lay-off announcements by giant techies.

USD/JPY technical outlook

USD/JPY is auctioning in a Rising Wedge chart pattern that indicates a loss in the upside momentum on an hourly scale. The aforementioned chart pattern results in a bearish reversal after a breakdown. The asset is struggling to reclaim an auction above the 50-period Exponential Moving Average (EMA) at 134.75.

Meanwhile, the Relative Strength Index has surrendered oscillation in the bullish range of 60.00-80.00. A confident break into the bearish range of 20.00-40.00 will result in activation of the downside momentum.