USD/JPY has started the week on a positive note. Early in the North American session, the pair is trading at 104.99, up 0.27% at the day.
Japan’s inflation stronger than expected
Japan’s inflation has been at low levels for years, but the Bank of Japan has stubbornly kept its inflation target at around two percent. An argument can be made that this goal is unrealistic unless the economy shows a huge upturn. Still, there was positive news from the Services Producer Price Index in September, which climbed 1.3 per cent. This was up from 1% and marked the highest level since March. On Tuesday, we’ll get a look at BoJ Core Inflation, which is the central bank’s preferred inflation indicator. The index has been stuck at zero for the past two months, and a stronger than expected reading could give a boost to the Japanese yen.
Meanwhile, Japanese consumers remain unimpressed with economic conditions, as retail sales have declined for six successive months. The rate of decline eased to 1.9% in August, after a reading of -2.8% beforehand. However, analysts are braced for a dismal September, with a forecast of -7.5 per cent.
Japan has managed to contain the Covid-19 virus better than most industrialized countries. At the same time, the outlook for the economy remains cloudy at best, since Japan is heavily reliant on global demand for its exports. As long as Covid-19 persists and weighs on global economic growth, Japan’s own recovery is likely to be slow. This could translate into an increase in job losses and bankruptcies which will put pressure on the country’s financial system. As well, investor sentiment could sour with regard to Japan’s economy, which could also make the Japanese yen less attractive to international investors.
USD/JPY Technical Analysis
- We find support at 104.73, followed by support at 104.52
- USD/JPY is testing resistance at 104.91. The next resistance line is at 105.12