USD/JPY eyes Japanese CPI

It hasn’t been a good week for the Japanese yen, as USD/JPY has climbed 1.24%. The yen is almost unchanged today, trading at 135.16.

Japan wraps up the week with a key inflation release on Friday. Core CPI is forecast to rise to 2.5%, up from 2.2% in June. Japan’s inflation rate is much lower than what we’re seeing elsewhere, such as double-digit inflation in the UK. Still, after decades of deflation, inflationary pressures are a whole new world for Japanese policymakers, and the Bank of Japan is having to keep an eye on inflation, which is slightly higher than the central bank’s inflation target of 2%.

Unlike the Fed and the Bank of England which have declared inflation as public enemy number one, the BoJ is focused on stimulating the weak economy with an accommodative policy. That has meant being vigilant to keep JGB at low rates, even if this has resulted in a widening of the US/Japan rate differential and the yen falling close to 140 in July. Until the BoJ is convinced that inflation is not transient, a tweak or two is all we can expect with regard to monetary policy.

Fed has unfinished business

The Federal Reserve minutes on Wednesday were essentially a rehash of the Fed’s hawkish message; namely, that inflation has not been beaten and rate tightening will continue. Meeting participants said that the pace of rate hikes could ease once it was clear that inflation was easing, adding that there had not been signs of that so far. This is a very different take than the markets, which were practically giddy after US inflation dropped unexpectedly in July. The Fed has pledged to keep raising rates, but the markets are marching to their own tune and appear to be expecting a U-turn in policy, which has sent the equity markets higher and the US dollar lower.

.

USD/JPY Technical

•  135.46 is under pressure in resistance. Next, there is resistance at 1.3744
• There is support at 133.60 and 131.62

Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at info@marketpulse.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc.