USD/JPY drifting ahead of consumer spending and income reports

• BoJ minutes focussed on inflation
• Bank turmoil, debt ceiling weighs on risk appetite
• Japan to release consumer spending and income

The Japanese yen has started the trading week quietly and is trading just below the 135 line.

BoJ minutes eye inflation

The Bank of Japan released the minutes of the March meeting today. Inflation was, unsurprisingly, a hot topic at the meeting. Several members urged the BoJ to be on alert for inflation accelerating more than expected and many members were in favor of maintaining an ultra-loose policy to “extremely high” concerns over Japan’s economic outlook.

The meeting was the final one chaired by Haruhiko Kuroda, who was succeeded by Kazuo Ueda. The new Governor didn’t make any policy changes at his first meeting but did remove guidance on future rate moves. There is speculation that Ueda will take steps to normalize policy, which would send the yen lower.

The turmoil in the banking sector doesn’t look like it will disappear anytime soon. Regional banks remained exposed to commercial mortgages and two regional banks saw their shares drop sharply last week. Credit conditions have tightened since the SVB debacle and that means that the Fed may be able to cut rates sooner than it anticipated. Fed Chair Powell poured cold water on any cuts in the near future, but the markets are sticking to their guns and have priced in the chance of a rate cut in September at 80%, according to the CME Group.

The banking sector’s woes and the debt crisis ceiling are weighing on risk appetite. I expect lawmakers to get their act together before the deadline (as they always have), but Treasury Secretary Yellen warned last week that waiting until the last minute had dire consequences, which included damage to business and consumer confidence.

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USD/JPY Technical

• There is support at 134.50 and 132.97
• There is resistance at 135.37 and 137.24

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