The Japanese yen is considerably lower on Thursday. In the North American session, USD/JPY rose as much as 0.69% today but has pared most of those gains and is trading at 144.93, up 0.25%.
Tokyo Core CPI projected to remain at 2.2%
With inflation heading lower, major central banks have entered a new cycle of lowering interest rates. The exception to the rule has been Japan, where inflation has been moving higher. This has made the Bank of Japan an outlier, as it is expected to continue to normalize policy and raise rates, which currently are barely above zero.
Tokyo core CPI, considered the leading indicator of nationwide inflation will be released early on Friday. The index has accelerated for three straight months and is expected to remain unchanged at 2.2% y/y. The rise in Japan’s inflation supports the case for a rate hike and all eyes will be on the Bank of Japan when it meets on Sept. 20. The yen has improved by 3.1% since the last meeting on July 31 and the stronger Japanese currency has meant reduced inflationary pressures.
The BoJ is not known for transparency but has signaled that it plans to normalize policy and raise interest rates. Deputy Governor Himino said on Wednesday that the BoJ will hike if it is confident that its outlook for economic activity and inflation will be achieved. Himino cautioned that the BoJ remains very concerned about the volatility in the financial markets, reiterating that the central bank is in no rush to raise rates.
In the US, second-estimate GDP for the second quarter was revised upwards to 3.0%, up from the initial estimate of 2.8%. The revision was largely driven by an increase in consumer spending. The solid gain indicates that the US economy remains resilient but markets are casting a nervous eye at next week’s employment report.
The previous report showed a deterioration in the US labor market and triggered a brief market meltdown. The solid GDP report has failed to put a dent in rate cut expectations with a 2/3 likelihood of a 50-bps cut and a 1/3 probability of a 25-bps reduction, according to the CME’s FedWatch.
USD/JPY Technical
- USD/JPY tested resistance at 145.19 earlier. Above, there is resistance at 145.79
- There is support at 144.44 and 143.84
