USD/JPY – Yen sinks to 6.5 month low, is 140 next?

• USD/JPY punches to its highest level since November 2022
• Japan eyes Core CPI

The Japanese yen’s woes continue, as the currency has plunged a massive 400 points over the past week. In Thursday’s North American session, the yen is trading at 138.52, up 0.60% on the day. USD/JPY hasn’t been at such high levels since November 2022.

Japan’s Core CPI expected to accelerate

All eyes will be on Japan’s Core CPI release early on Friday. This is a key inflation indicator and could move the dial of the yen. The markets are expecting Core CPI to rise to 3.4% in April, after two straight readings of 3.1%.

Inflation remains a key issue for the Bank of Japan. The new Governor, Kazuo Ueda, has continued the Bank’s ultra-accommodative policy but has also hinted at taking steps towards normalization, such as adjusting the yield curve control (YCC) policy if inflation remains sustainable above 2%.  This week’s GDP release showed growth in the first quarter was higher than expected, and that could raise expectations that the Bank will shift policy, perhaps in baby steps, in the near future. As for interest rate policy, we’re unlikely to see any tightening before 2024.

Federal Reserve Chairman Powell will speak on a panel later today, and the markets will be all ears. Powell has remained hawkish, saying that high inflation could result in further rate hikes. Powell has dismissed outright any rate cuts, but the markets still believe that the Fed will trim rates before the end of the year. JP Morgan weighed in earlier this week, saying they agreed with the markets that the Fed would cut rates, as the economy was likely to tip into a recession.

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USD/JPY Technical

• USD/JPY is testing resistance at 138.42. Above, the next resistance line is 139.58
• There is support at 137.08 and 136.42

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