USD/JPY Cautious as Japanese Inflation Comes in Hotter than Expected

  • USDJPY
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USD/JPY Analysis

The Fed has adopted a conservative stance around removing monetary restraint. With strong economy, robust labor market and persistence in price pressures recently, policymakers are not in rush to cut rates. The Bank of Japan on the other, is looking to exit its ultra-loose setting, but has pushed back any action and refrained from any changes last month. It stayed the course and wants to make sure it will achieve the 2% inflation target in a "sustainable and stable manner", together with "wage increases".

USD/JPY heads to the conclusion of its second straight profitable month due to this monetary policy differential. This has brought it within striking distance of the July 1990 high (152.20), although larger advance has a higher degree of difficulty.

Today's data showed further deceleration in Japan's inflation (ex-fresh food), but at 2% y/y it was hotter than anticipated. Furthermore, it stayed above the central bank's 2% target for nearly two years, which forecasts it at a median of 2.4% for the next fiscal year (starting in April).

The CPI report seems to support market expectations for policy normalization by the BoJ sooner than later, with April emerging as a likely date, following the outcome of the wage negotiations. As such, USD/JPY faces pressure today, while even if reserved, the Fed has pointed to multiple cuts this year. This creates scope for a correction towards the EMA200 (148.60), but strong catalyst would be needed for daily close below it that would pause the upside bias.

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The next leg of the move will be determined by key data from the US, including PCE inflation and GDP updates.

Nikos Tzabouras

Senior Financial Editorial Writer

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

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