Japan yen’s mini-rally fizzles, Tokyo Core CPI next

• Tokyo Core CPI expected to tick lower to 2.9%
• US to release jobless claims and durable goods orders later on Thursday

USD/JPY put together a mid-week rally with gains of 1% but is considerably lower on Thursday.  In the European session, USD/JPY is trading at 145.72, up 0.60%.

Markets eye Tokyo Core CPI

Japan releases Tokyo Core CPI on Friday, the third inflation report in just over a week. The previous two releases were for July, but Tokyo Core CPI is the first indicator of August inflation, hence its importance.

The Bank of Japan closely follows core inflation, which excludes fresh food, as it is considered a more accurate estimate of underlying price pressures than headline inflation.  But which way is core inflation headed? Last week, National Core CPI eased to 3.1% in July, down from 3.3% in June.  However, BoJ Core CPI followed this week with a gain of 3.3%, up from 3.0%.

Tokyo Core CPI eased to 3.0% in July, marking the 14th consecutive month above the Bank of Japan’s 2% target.  This is a sign that inflationary pressures remain strong.  Little change is expected for August, with a consensus estimate of 2.9%.

The BoJ has insisted that inflation is transient and that without evidence that high inflation is sustainable, such as stronger wage growth, it will not tighten policy. Still, there is speculation that unless inflation falls significantly, we could see the central bank make a shift in policy, especially if the yen remains at such low levels.

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USD/JPY Technical

• USD/JPY is testing resistance at 145.54. Above, there is resistance at 146.41
• There is support at 144.51 and 143.64

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