USDJPY is recovering despite Japan’s rising inflation

In spite an increase in Japan’s inflation, USDJPY has recovered from 134.00.

After the release of higher-than-expected Japan’s National Consumer Price Index (CPI) data, the USDJPY pair has defended the critical support level of 134.00 in the Asian session. Annual national CPI (March) increased to 3.2% from 2.6% expected. Although stayed lower than the previous announcement of 3.3%.

The drop in headline CPI from previous data is the result of falling worldwide oil prices. The core PCI, which excludes the influence of fluctuating oil and food prices, increased to 3.8%, above expectations of 3.4% and the previous report of 3.5%. This suggests a sustained increase in retail demand, which is backed by the continuation of ultra-easy monetary policy and wage-inflationary stimulation.

This implies that the Bank of Japan (BoJ) is on pace to keep the inflation rate consistently over 2%. Previously, Bank of Japan Governor Kazuo Ueda stated that the central bank expects to achieve stable consumer prices above 2% by 2025.

The BoJ appears to be on pace to keep the inflation rate consistently over 2%.

According to Reuters, the Bank of Japan is considering making changes to its controversial bond yield control strategy later this year. “The preferred approach, for now, is to stay the course,” according to sources close to the Bank of Japan, “which means the bank will make no major immediate changes to YCC and its dovish policy guidance.”

Meanwhile, the US Dollar Index (DXY) is fluctuating at 101.80, indicating nervousness ahead of preliminary S&P PMI data. The manufacturing PMI is expected to be at 49.0, which is lower than the previous edition of 49.2. The Services PMI is also expected to fall to 51.5 from 52.6 before.

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