Japanese Yen Forecast: USD/JPY Bearish as Yields and Oil Drops
USD/JPY Analysis and Talking Points:
- Japanese CPI Prints In-Line With Estimates
- USD/JPY Pullback
The Japanese Yen has been among the top-performing currencies in the G10 space this week. This has come amid the pullback in both global bond yields and oil prices, two factors that have been a key driver of the Yen this year. Keep in mind that Japan is a net importer of oil and thus lower oil prices should be supportive for the Japanese Yen. Meanwhile, falling global bond yields reduce the yield disadvantage that the Yen has.
Overnight, the latest Japanese CPI figures printed in line with market estimates with the headline above the BoJ’s 2% target for a second consecutive month. However, the preferred core measure (ex-food & energy) is still some distance away from the Bank’s target, rising only 0.8%, which in turn will likely see the BoJ remaining as the last dovish central bank.
As long as the BoJ is the odd one out as global central banks tighten, a significant reversal in USD/JPY is unlikely, unless Japanese Officials take action against a weaker Yen or a BoJ pivot. However, that is not to say USD/JPY can’t experience pullbacks, as such, with oil and yields softer and positioning very short on the Yen, the short-term outlook is bearish for the pair. That said, on the downside, support is situated at 131.35-50 (May highs & Last week's low), below which puts 130 in focus.
USD/JPY Chart: 4-Hour Time Frame
USD/JPY Chart: Weekly Timeframe
Looking ahead, today will see the release of the final U. of Michigan Survey data. While this would not normally be market moving, in light of Chair Powell’s explicit mention of the inflation expectations component being a factor for flipping to a 75bps hike, this could perhaps be the most-watched revision in a long time.
“So the preliminary Michigan reading, it's a preliminary reading, it might be revised, nonetheless it was quite eye-catching and we noticed that. We also noticed that the Index of Common Inflation Expectations at the Board has moved up after being pretty flat for a long time, so we're watching that and we're thinking this is something we need to take seriously. And that is one of the factors as I mentioned. One of the factors in our deciding to move ahead with 75 basis points today was what we saw in inflation expectations”
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