USD/JPY flat, Tokyo Core CPI higher than expected

Japanese yen pushes above 161

The Japanese yen is unchanged on Friday, but has managed to set a new low against the US dollar. The yen is trading at 160.72 in the European session and fell as low as 161.28 earlier, its lowest level since 1986.

Tokyo Core CPI accelerates to 2.1%

Tokyo core CPI, which excludes fresh food and is closely monitored by the Bank of Japan, climbed to 2.1% y/y in June, up from 1.9% in May and above the market estimate of 2%. The increase in inflation was driven by higher prices for electricity and natural gas. Headline CPI rose to 2.3%, up from 2.2% in April.

The inflation report keeps the pressure on the Bank of Japan to raise interest rates, but the central bank has been hesitant to make the move and the markets aren’t expecting a rate hike at the July meeting. Bank policy makers have been focused on demand-driven inflation and want further evidence that inflation is sustainable at 2% before raising rates.

What may prod the BoJ to raise rates in the near term is the slide of the Japanese yen. The yen is at a 38-year low against the greenback and has plunged about 14% this year. The BoJ intervened twice in the currency market recently and purchased some $61 billion worth of yen but that has failed to stem the bleeding.

Verbal intervention hasn’t had much effect and Japan’s top currency diplomat, Masato Kanda, was replaced by Atsushi Mimura on Friday. Kanda was considered aggressive with his jawboning and we’ll have to see if Mimura has any more success in defending the yen against speculators.

USD/JPY Technical

• USD/JPY pushed above resistance at 160.90 and 161.18 earlier. The next resistance line is 161.53
  There is support at 160.63 and 160.43

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