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Risk appetite and expectations of a less dovish BOJ decision are weighing on USD/JPY so far this week!

Will the pair extend its downswing even without top-tier data on the docket?

Before moving on, ICYMI, I’ve listed the potential economic catalysts that you need to watch out for this week. Check them out before you place your first trades today!

And now for the headlines that rocked the markets in the last trading sessions:

Fresh Market Headlines & Economic Data:

MI monthly inflation gauge showed Australia’s prices easing from 1.0% to a four-month low of 0.2% in December

AU building permits down by another 9% m/m in November after 5.6% drop in October

China’s new home prices fall by 1.5% y/y in December, marking its 8th consecutive monthly decline

Yen jumps on hopes of BOJ policy shift; dollar slides to seven-month low

Oil dips as China COVID case surge clouds fuel demand prospects

Upcoming Potential Catalysts on the Forex Economic Calendar:

US banks out on Martin Luther King Jr. Day holiday
Canada’s manufacturing sales at 1:30 pm GMT
BOE Gov. Bailey to testify before the Parliament in London at 3:00 pm GMT
BOC business outlook survey at 3:30 pm GMT
China’s data dump at 2:00 am GMT (Jan 17)

Use our new Currency Heat Map to quickly see a visual overview of the forex market’s price action! 🔥 🗺️

What to Watch: USD/JPY

USD/JPY 1-hour Forex Chart

USD/JPY 1-hour Forex Chart by TradingView

No big data release? No problem!

In case you missed it, the U.S. dollar is losing pips across the board as traders priced in a slower pace of tightening from the Fed and other major central banks.

USD/JPY, in particular, is receiving an extra bearish push from speculations that the Bank of Japan (BOJ) might be turning less dovish this week.

Recall that BOJ surprised the markets last month when it raised the ceiling of tolerance band of Japan’s 10-year government bond yields. Not surprisingly, traders took “new ceiling” to mean “new policy” from the BOJ.

With BOJ releasing its policy decision this week, traders are betting on more clues of a policy shift from dovish to a not so dovish stance.

USD/JPY started the week on a weak note but found support at the 127.25 zone.

The pair is now trading closer to 108.50, which is on track for the 130.00 psychological handle that lines up with January’s previous support and the Fibonacci retracement zone on the 1-hour time frame.

Look out for bearish pressure around the Fib retracement levels. Unless we see new catalysts or USD/JPY makes new monthly highs, the path of least resistance for the pair is to extend the downtrend that’s been solid since October 2022.

Watch this one closely, forex friends!