USD/JPY jumpy as Japan’s core CPI eases

The Japanese yen showed some promise earlier, gaining as much as 0.48% against the US dollar as it rose to 153.59. However, it has pared those gains and is trading in Europe at 154.58, down 0.04%.

Japan’s core CPI falls to 2.6%

Japan’s nationwide CPI, which excludes fresh food, rose 2.6% y/y in March, down from 2.8% in February but higher than the market estimate of 2.7%. Core CPI has now exceeded the Bank of Japan’s 2% target for 24 consecutive months. The deceleration was driven by a decrease in food inflation but the yen’s weakness prevented a sharper drop in inflation.

The “core-core” CPI reading, which excludes fresh food and energy, dropped from 3.2% to 2.9% in March, below the forecast of 3%. This marked the first time that the index has fallen below 3% since November 2022.

While consumer inflation continues to slow, the Bank of Japan is more focused on services inflation, as it believes that services inflation together with higher wage growth are the recipe to ensuring that inflation remains sustainable at the 2% target.

The yen is down almost 10% since the start of the year and the sharp depreciation in such a short period has Tokyo concerned. The Ministry of Finance last intervened in the currency markets in late 2022 when the yen traded around 152. With the yen falling this week to 154.78, a 34-year old low, the markets are on alert for the possibility of another intervention.

The weak yen could also have a significant impact on rate policy. On Thursday, BoJ Governor Kazuo Ueda said that the Bank might raise interest rates again if the yen’s decline led to a significant rise in inflation. The BoJ lifted rates out of negative policy in March but the yen has weakened since then.

USD/JPY Technical

• USD/JPY tested resistance at 154.43 earlier. Above, there is resistance at 154.71
• There is support at 154.11 and 153.83

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