USD/JPY Analysis and Talking Points:
- Japanese CPI prints parallel to estimates
- The US dollar / Japanese yen pair fell
The Japanese Yen has been among the best performing currencies in the G10 region this week. This comes amid declining global bond yields and oil prices, two factors that have been a major driver of the Japanese yen this year. Keep in mind that Japan is a net importer of oil, so lower oil prices should be supportive of the Japanese yen. Meanwhile, lower global bond yields reduce the downside to yen yields.
Overnight, Japan’s latest CPI numbers were released in line with market estimates with heading above the Bank of Japan’s 2% target for the second month in a row. However, the preferred primary metric (excluding food and energy) is still far from the bank’s target, rising by just 0.8%, which in turn will likely see the BoJ as the latest dovish central bank.
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As long as the BoJ is the odd thing with global central banks tightening, a major USD/JPY reversal is unlikely, unless Japanese officials take action against yen weakness or the BoJ pivot. However, this does not mean that the USD/JPY cannot experience pullbacks, as such, with lower oil prices and yields and very short positions on the JPY, the short-term outlook is bearish for the pair. However, on the downside, support is located at 131.35-50 (May’s high and last week’s low), and below that puts 130 pips in focus.
USD/JPY chart: 4 hour time frame
USD/JPY Chart: Weekly Time Frame
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Looking ahead, today we will see the release of final US survey data for Michigan. While this wouldn’t normally be market-impact, given President Powell’s explicit reference to the inflation expectations component as a factor of flip-flopping to a 75bp increase, this may be the most watched adjustment in a long time.
So the Michigan preliminary reading, is a preliminary reading, and may be revised, and yet it was a complete look–Catching and we noticed it. We also noticed that the Board’s Common Inflation Expectations Index rose after being flat for a long time, so we’re watching that and believe that’s something we should take seriously. This is one of the factors as I mentioned. One factor in our decision to go forward with 75 basis points today was what we saw in the inflation expectations.”
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