USDJPY rebounds to a four-week high as the USD Index holds support ahead of US CPI

USDJPY pair reached a new four-week high near 134.04 round figure.

In the Asian session, the USDJPY pair reached a new four-week high of 134.04. The asset’s upside bias is the result of a recovery in the US Dollar Index (DXY), as investors have begun to become nervous ahead of the release of US inflation data and the continuation of the Bank of Japan’s support for expansionary monetary policy.

The USD Index is attempting to defend a test of the 102.00 support level as investors become increasingly concerned ahead of the US Consumer Price Index (CPI). Demand for US government bonds remains choppy ahead of US inflation. Ten-year US Treasury bond yields are currently hovering around 3.43%.

Meanwhile, S&P500 futures have maintained their sideways performance as investors prefer a more stable environment. Positions in equities are being held back in anticipation of the quarterly results season. Stock-specific action in the S&P500 is very likely in the near future.

Core inflation in the United States is expected to remain stable in the face of strong labor demand.

“After rising 0.4% in February, we expect the CPI to moderate to a 0.2% gain in March,” analysts predict. With the initial surge in oil/gasoline prices caused by Russia’s invasion of Ukraine now a full year behind us, CPI should fall to 5.1% in March from 6.0% in February.

However, another high reading in the core CPI is likely to indicate that the recent inflation trend has not improved significantly. We expect the CPI to rise 0.4%, excluding food and energy, and to remain close to 5% on a three-month annualized basis.

Despite wage increases, Japanese firms are failing to raise the prices of their offerings due to weaker retail demand.

In terms of Tokyo, Expectations for inflation have been reduced as the Producers Price Index (PPI) has been reduced. On a monthly basis, stagnant performance has been observed, as expected. While annual PPI fell further to 7.2% from 8.0% in the previous release, it remained higher than the consensus of 7.1%. This reflects firms’ inability to raise prices for goods and services in the face of weaker retail demand, despite wage growth.

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