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Japanese Yen Rises as Inflation Higher than Expected

The Japanese yen has bounced back on Tuesday after starting the week with losses. In the European session, USD/JPY is trading at 145.67, down 0.37%.

BoJ core inflation rises to 3.3% 

Earlier today, Japan released BoJ core inflation, one of the central bank’s preferred inflation indicators. Inflation reports used to be rather dull events when Japan experienced deflation. That has all changed now in the era of high inflation across the globe. Japan’s inflation is relatively low at 3% to 3.5%, but it has persistently been above the Bank of Japan’s 2% target and has raised expectations that the BoJ might have to tighten policy.

BoJ core inflation surprised on the upside in July, with a gain of 3.3% y/y. This was above the June reading of 3.0% and the consensus estimate of 2.9%. Last week, National Core CPI eased to 3.1% in July, down from 3.3% in June. We may have to wait for further inflation releases to get a handle on which way inflation is moving. In any event, the BoJ core inflation release was higher than expected and has given a boost to the Japanese yen.

Markets eye Jackson Hole

If it’s late August, there must be a lot of central bankers enjoying the Wyoming scenery. Fed Chair Powell hosts the annual Jackson Hole Symposium which begins on Thursday. Powell delivers a highly-anticipated speech on Friday, as investors will be looking for clues about the Fed’s future rate policy.

The Fed is expected to raise interest rates next month, but traders are divided on whether the Fed will raise rates or pause at the November meeting. Powell’s remarks could provide clues on what the Fed has planned in November. Inflation has been moving in the right direction but the Fed doesn’t want the markets to become too complacent, as the battle to wrestle inflation down to 2% is not over. I would expect Powell to send a cautious, perhaps hawkish message in his Jackson Hole speech.

USD/JPY Technical

  • USD/JPY is testing support at 146.41. The next support line is 145.54
  • There is resistance at 147.44 and 148.31

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