Will US CPI shake up sleepy yen?

• US inflation expected to remain at 5.0%
• BoJ to release Summary of Opinions

USD/JPY continues to have a quiet week and is almost unchanged, trading at 135.20.

Investors eye BoJ Summary of Opinions

The markets will be keeping a close eye on the Bank of Japan’s Summary of Opinions, which will be released later today. The summaries rarely move the dial on the yen, but this summary could be different, as it covers the April meeting which was the first chaired by Governor Kazuo Ueda. The BoJ did not change its policy settings at the meeting, but there are growing expectations that Ueda will take steps to normalize policy, which would boost the yen. At the meeting, the BoJ removed guidance on rate levels which committed to maintain rates at “current or lower levels” and announced it would review its monetary policy.

Ueda said on Tuesday that there were positive signs in inflation and inflation expectations, and said the BoJ would end its yield curve control (YCC) policy once it was clear that inflation would “sustainably and stably meet our 2% target”. The yen did not react to these comments, but it appears that Ueda is slowly but surely making plans to shift policy and gradually wind up former Governor Kuroda’s massive stimulus program, which has been the hallmark of BoJ policy for years.

US inflation expected to hold steady

The US release the April inflation report later today, and indications are that CPI remains sticky, which isn’t great news for the Fed. Headline inflation is expected to remain unchanged at 5.0%, while the core rate is projected to tick lower to 5.5%, down from 5.6% in March.

The Fed has signalled that it will pause rates next month, and this has been priced in by the markets at 78%, although there is a 21% of a rate hike, according to the CME Group. A hotter-than-expected inflation report would likely raise the probability of a rate hike and provide a boost to the US dollar.

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USD/JPY Technical

• USD/JPY tested resistance at 135.37 earlier in the day. Above, the next resistance line is 137.24
• There is support at 134.50 and 132.97

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