JPY stronger as investors switch to risk-off mode

The Japanese yen gained momentum on the last trading day of the week as it rose 0.85% and 0.63% against the pound and the Aussie respectively. USD/JPY fell as much as 0.53%, down to 111.25, as investors switched to risk-off mode ahead of the weekend. Gold inched higher and rose $5.5 to 1,262.30 during the Asian session, while the Swiss franc rose 0.15% against the greenback.

During the early morning session, the Ministry of Internal Affairs published the inflation figures for the month of April. There was no big surprise. Inflation accelerated in the last month with the headline measure rising 0.4% y/y, matching forecast, up from 0.2% a month earlier. The BoJ favourite measure of core inflation climbed to a 2-year high of 0.3% y/y versus 0.2% in March and 0.4% median forecast. The measure that excludes fresh food and energy costs printed at 0.0%, highlighting the fact that the pickup in inflation was mostly driven by higher food and energy prices. With crude oil prices back in the doldrums, it is very unlikely that we will see further momentum in headline inflation. We still wonder how the BoJ will reach its 2% target before April. They will have to delay further as upside pressures in the core measure are inexistent.

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USD/JPY is currently breaking the 111.25 support level (Fibonacci 50% on April’s rally). If broken, the closest support can be found at 110.51 (Fibo 61.8%). On the upside, a resistance lies at around 112.