Yen edges higher ahead of Tokyo CPI

The Japanese yen has edged higher on Thursday, after showing strong volatility a day earlier. In the North American session, USD/JPY is trading at 128.48, down 0.32%.

There was plenty of anticipation ahead of the Bank of Japan meeting on Wednesday, with speculation that the central bank would follow up on the December meeting and change its policy settings. In the end, the BoJ defied market expectations and maintained policy. After the announcement, the yen dropped as much as 2.6% but pared most of those losses.

The BoJ may have got the last laugh (for now) against speculators with its non-move, but that doesn’t change the big picture. A shift in the BoJ’s ultra-loose policy appears to be a matter of when rather than if, given that inflation is hovering at its highest level in 41 years. The markets expect to get another confirmation that inflation is rising, with the release of Tokyo CPI later today. The headline figure is expected to climb to 4.4% in December, up from 3.8% in November, while the core rate is projected to accelerate to 4.0%, following a 3.7% gain. The BOJ has insisted that inflation is transitory, but this stance is becoming harder to defend as inflation continues to rise and shows no sign of peaking.

Mixed US data

US numbers were a mix today. Unemployment claims sparkled, falling from 205,000 to 190,000 and beating the forecast of 214,000. The US labor market remains robust and is a critical factor in enabling the Fed to remain hawkish and continue raising interest rates. The manufacturing sector, however, is looking dismal. The Philly Fed Manufacturing Index came in at -8.9, its seventh decline in the past eight months. This follows a dismal read from the Empire State Manufacturing Index earlier this week, which fell to -32.9 in December, down from -11.2 in November.

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USD/JPY Technical

• USD/JPY is testing support at 128.40. The next support line is 127.13
• There is resistance at 129.40 and 131.33

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