USDJPY Higher Again As Cooler Japan Inflation Softens Yen
Japanese Inflation Cools
The Japanese Yen is weakening again today following a further set of softer-than-forecast JPY inflation figures. The BOJ core CPI reading came in at 1.4% last month, down from 1.7% prior and expected. This comes on the back of the national core CPI reading last week showing a similar drop. With inflationary pressures cooling, near-term BOJ expectations have turned less hawkish. Meanwhile, the US Dollar remains bid today amidst ongoing uncertainty over the health of US/Iran peace talks. Trump claimed over the weekend that a deal was now very close to being agreed. However, news of US military strikes overnight on Iranian targets, followed by the IRGC firing at a US drone, has sparked fresh uncertainty among traders with oil prices bouncing off initial lows and the US Dollar seeing fresh safe-haven demand accordingly. While this dynamic remains, USDJPY should continue higher for now.
Hawkish Fed Expectations Supporting USD
Alongside the upside pact on USD from the ongoing uncertainty around US/Iran peace talks, a more hawkish Fed outlook is also supporting USD. Hotter-than-forecast April inflation saw Fed rate hike expectations soaring with pricing for a hike by year end now sitting above the 50% level. Near-term, the Iran war will remain the key driver as any breakthrough in peace talks and/or signs of a deal should see energy prices dropping sharply. In this scenario, inflationary risks will reduce near-term which should cool traders’ hawkish Fed expectations, leading USD lower. However, while the war drags on and no deal is done, crude prices are vulnerable to a fresh push higher, keeping inflation pressures stoked and USD primed for fresh upside, particularly if BOJ expectations turn less hawkish.
Technical Views
USDJPY
The rally off the bull channel lows has seen the market breaking back above the 157.85 level with momentum studies bullish once again. While above here, focus is on a continuation higher with 161.95 the next target for bulls ahead of the channel highs. To the downside, any break of the channel lows will turn focus to support at 154.65 next.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.