Japanese yen range-trading

The Japanese yen continues to range-trade early in the week. Currently, USD/JPY is trading at 103.67, down 0.06% on the day.

BoJ minutes note concern over yen

There were no surprises from the Bank of Japan minutes, which provide a glimpse of the views of central bank policymakers. The minutes were from the December meeting, where the bank made no changes to monetary policy. Bank members trotted out concern about the usual suspects, namely, Covid-19 and inflation, with the latter situated well below the bank’s inflation target. What was of more interest was several members expressed uneasiness about the exchange rate, noting that the depreciation of the dollar against the yen “continued to warrant
attention”. The BoJ is quite sensitive to the exchange rate, as a significant move in the value of the yen can have an affect on price movement.

Japan’s inflation remains at very low levels, and there was no relief from BoJ Core CPI, the central bank’s preferred inflation gauge. The index fell to -0.3% in December, down from -0.1% beforehand. The Services Producer Price Index came in at -0.4%, marking a third successive decline. Will this reading raise alarm bells at the Bank of Japan? We’ll get one more look at inflation this week, with the release of Tokyo Core CPI on Thursday (23:50 GMT). The index is expected to decline for a sixth straight month, with a street consensus of -0.6%.

Another area of concern is the domestic economic activity, especially with some 60% of the country under a state of emergency. Although these restrictions are much less strict than the lockdowns we are seeing in Britain and Europe, they nonetheless are hampering consumer spending and the services sector. Japan releases retail sales later in the day (23:50 GMT), with the markets braced for a contraction of -0.4%.

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USD/JPY Technical Analysis

The weekly support/resistance levels are fairly close together:

• USD/JPY is facing resistance at 104.13. The next resistance line is at 104.49
• The 100-day moving average (MA) is situated at 104.53
• There are support levels at 103.37 and 102.97

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