Japanese yen directionless

USD/JPY is almost unchanged in Monday trade. In the European session, USD/JPY is trading at 110.73, down 0.03% on the day.

The US dollar has not looked especially sharp recently against the majors, but the yen hasn’t been able to capitalize. USD/JPY is up 1.06% in May, and the pair has had only one losing month since February.

Japan grappling with low inflation

Japan releases Retail Sales for May on Tuesday, and the estimate of 7.9% should be taken with a grain of salt, as it is in comparison with the May 2020 reading at the height of Covid. Inflation remains depressed, although there was some positive news last week. Tokyo Core CPI came in at zero in June, ending a streak of 10 straight declines. However, the small gain is attributable to higher energy prices, with prices in other areas not rising.

Inflation has been in focus for central policymakers from the US to Australia, as the reopening of the economies has triggered higher inflation, raising expectations that the central banks may respond by tightening policy and eventually withdraw stimulus. This is not the situation in Japan, where continuing health restrictions have put a damper on consumer spending. The BoJ projects that inflation will not hit the 2% target before 2024. Given the prolonged period of deflation that the country has experienced, it would be a surprise if the bank’s forecast proved to be accurate.

Over in the US, a light data calendar this week means that the focus will be on employment releases. The highlight will be the June nonfarm employment change on Friday. The consensus stands at 690 thousand, considerably higher than the May figure of 559 thousand. Although the US economy is performing well, the exuberant estimates of one million-plus new jobs, which we saw earlier in the year, have been toned down.

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USD/JPY Technical

• There is resistance at 111.36. Above, there is resistance at 111.94
•  On the downside, there is support at 109.96, followed by support at 109.14

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