- The Japanese Yen appreciates due to higher economic data from Japan.
- BoJ’s Adachi favored raising interest rates if a weaker JPY leads to heightened inflation.
- The decline in the US Treasury yields could limit the advance of the US Dollar.
The Japanese Yen (JPY) gained ground after the Tokyo Consumer Price Index (CPI) data by the Statistics Bureau of Japan was released on Friday. The year-over-year CPI increased to 2.2% in May, up from the previous 26-month low of a 1.8% rise.
The Bank of Japan (BoJ) has maintained a deeply entrenched monetary policy stance. If nationwide inflation in Japan declines, it will prevent the central bank from raising interest rates. The significant rate differential between Japan and other countries continues to pressure the Japanese Yen, underpinning the USD/JPY pair.
US Dollar (USD) rebounds ahead of the Federal Reserve’s preferred inflation gauge, the Core Personal Consumption Expenditures (PCE) Price Index, which will be released on Friday. The decline in the US Treasury yields could limit the advance of the US Dollar.
US Dollar Index (DXY), which measures the value of the US Dollar (DXY) against six other major currencies, trades higher around 104.80 with 2-year and 10-year yields on US Treasury bonds standing at 4.92% and 4.54%, respectively, by the press time.
Daily Digest Market Movers: Japanese Yen holds ground after higher economic data
- Tokyo’s Core Consumer Price Index (CPI) rose 1.9% year-over-year in May, accelerating from a two-year low of 1.6% in April, as expected. This figure remains below the Bank of Japan’s (BoJ) 2% target for the second consecutive month, reducing the pressure on the BoJ to raise interest rates soon.
- Japan’s Retail Sales (YoY) grew 2.4% in April, accelerating from a downwardly revised 1.1% rise in March and surpassing market forecasts of 1.9% growth. This marks the 26th consecutive month of expansion, indicating a sustained period of healthy consumption in Japan.
- On Thursday, US Gross Domestic Product (GDP) Annualized growth rate was revised lower to 1.3% from 1.6% for the first quarter. Additionally, the US weekly Initial Jobless Claims for the week ending May 2 rose to 219K from the previous week of 216K, above the market consensus of 218K.
- According to Bloomberg, Federal Reserve Bank of Atlanta President Raphael Bostic stated on Wednesday that the path of inflation is expected to be uneven, and a decrease in inflation breadth would bolster confidence in the necessity of a rate cut.
- On Wednesday, the Fed Beige Book report covering April to mid-May showed that national economic activity experienced slight growth, with mixed conditions across industries and districts. The report also indicated that employment rose slightly, wage growth was moderate, and prices increased modestly as consumers resisted further price hikes.
- Reuters reported that Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, hinted at the possibility of a rate hike. Kashkari remarked, “I don’t believe anyone has completely ruled out the option of increasing rates,” expressing doubts about the disinflationary trend and projecting only two rate cuts.
- On Wednesday, BoJ board member Seiji Adachi emphasized the gradual reduction of bond purchases to ensure that long-term yields accurately reflect market signals. Additionally, Adachi suggested that raising interest rates could be appropriate if a weaker JPY leads to increased inflation, per Reuters.
Technical Analysis: USD/JPY drops below 157.00
The USD/JPY pair trades around 156.80 on Friday. The daily chart shows a symmetrical triangle, indicating a pause in the prevailing bullish trend. However, the 14-day Relative Strength Index (RSI) remains above 50, suggesting a continued bullish bias for the pair.
The USD/JPY pair could test the upper boundary of the symmetrical triangle, followed by the psychological level of 158.00. If this level is breached, the next target could be 160.32, marking its highest point in over thirty years.
On the downside, immediate support appears at the psychological level of 157.00, followed by the nine-day Exponential Moving Average (EMA) at 156.55. A further decline could lead the USD/JPY pair to test the lower boundary of the symmetrical triangle.
USD/JPY: Daily Chart
Japanese Yen price in the last 7 days
The table below shows the percentage change of the Japanese Yen (JPY) against listed major currencies in the last 7 days. Japanese Yen was the strongest against the US Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.07% | -0.22% | -0.49% | -0.51% | -0.17% | -0.51% | -1.12% | |
| EUR | 0.06% | -0.16% | -0.42% | -0.42% | -0.10% | -0.42% | -1.06% | |
| GBP | 0.22% | 0.15% | -0.26% | -0.27% | 0.07% | -0.26% | -0.89% | |
| CAD | 0.47% | 0.45% | 0.27% | -0.02% | 0.33% | 0.00% | -0.65% | |
| AUD | 0.50% | 0.43% | 0.28% | 0.02% | 0.34% | 0.00% | -0.59% | |
| JPY | 0.15% | 0.11% | -0.06% | -0.32% | -0.35% | -0.31% | -0.97% | |
| NZD | 0.50% | 0.41% | 0.28% | 0.02% | 0.00% | 0.34% | -0.64% | |
| CHF | 1.09% | 1.05% | 0.88% | 0.64% | 0.62% | 0.93% | 0.62% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
