The Japanese yen is slightly higher in Tuesday trade. In the North American session, USD/JPY is trading at 109.47, up 0.20%.
The week started with a data dump out of Japan. The highlight was GDP for the first quarter, which was not as bad as expected, although the economy did contract. GDP came in at -1.0% q/q, upwardly revised from -1.3%. It was a similar story with annualized GDP, as the reading of -3.9% beat the forecast of -5.1%. If the country can gain control over Covid, the economy will be able to reopen and GDP, as well as other key indicators, should show improvement.
Inflation levels remain at very low levels in Japan, and with the economic downturn due to Covid, there is little reason to expect that this will change anytime soon. BoJ Core CPI, the Bank of Japan’s preferred gauge of inflation, dipped to -0.1% in March, down from zero a month earlier. The index has managed just one gain in the past 13 months. Tokyo Core CPI followed with a soft read of -0.2%, marking a tenth consecutive decline.
It’s a very different inflation story in the US, as investors await Thursday’s CPI print. In April, CPI shocked with a huge gain of 4.2%, which triggered speculation that the Fed might consider a taper of its massive stimulus program. Last week’s nonfarm payroll report, which was weaker than expected, has relieved some of the pressure on the Fed to tighten policy. The reading of 559 thousand was a solid gain, but fell short of the consensus of 650 thousand. Still, the markets aren’t completely sold on the Fed’s insistence that higher inflation is temporary, and another high CPI release could again raise speculation that the Fed could taper in order to curb inflation.
- USD/JPY faces resistance at 110.13 and 110.73
- On the downside, there is support at 109.13, followed by 108.73