USDJPY Retreats Below Key Level as US CPI Fails to Trigger Hawkish Sentiment

The US dollar lost its gains after the inflation data was released, as expected, without changing the interest rate outlook. Traders still expect the Fed to cut rates twice before the end of the year, and without surprises, there is little room for the dollar to rise.

Markets are currently in a holding pattern. In the absence of significant changes in recent data, investors are trading sideways.

Japan After Election Results

In Japan, political developments are quite interesting. The ruling coalition lost its majority in the upper house, which will definitely make it harder to pass major decisions, plus trade deals with the US.

There’s also speculation about leadership changes. Ishiba has ruled out stepping down for now, but cabinet reshuffles are possible. We will wait and see if these shifts could lead to changes in fiscal policy or how Japan approaches trade with Washington.

This situation will pressure the yen. If you’ll see more political friction or a weaker hand in negotiations, the yen could soften further.

USDJPY Technical Analysis

On the charts, USDJPY failed to hold above 148.30 a level that repeatedly acted as strong resistance. After the breakout, the pair slipped back below the level which is a signal for sellers to step in.

If the USDJPY continues to slide, the next downside target is around 142, this support level held earlier this year. But if bulls regain control and price breaks above 148.30 again, the next key level to watch is 151.14, the 2024 high.

If you turn to 4-hour chart you will see an upward trend - recent bullish momentum. That trendline has now been broken, which could be an early sign that the short term trend is weakening.

There’s a minor support area around the 147.00 level. If sellers manage to push the price below this zone, it could open the door for a deeper move toward the recent lows. This would likely increase bearish pressure as traders look for confirmation of a larger reversal.

But buyers haven’t given up yet. Many will see 147.00 as a chance to defend support and position for a bounce back toward resistance levels.

What’s Next: Key Events This Week

There are several catalysts to watch in the coming days:

• Tuesday: Fed Chair Powell speaks, though no monetary policy comments are expected due to the pre-meeting blackout.
• Thursday: US and Japanese Flash PMIs + US Jobless Claims
• Friday: Tokyo CPI, a key gauge of inflation pressure in Japan

These upcoming reports could move the market, if inflation runs hotter than expected or jobless claims show signs of labor market stress

With USD/JPY stuck between a well-defined resistance and support, the breakout could be big.