USD/JPY steady as BoJ’s Ueda urges caution

The Japanese yen has been drifting since late last week and is calm on Monday. USD/JPY is trading at 156.85, down 0.09% on the day at the time of writing.

Ueda: BoJ will proceed with caution

The Bank of Japan has been outlier, as it looks to raise interest rates at a time when other major central banks are aiming to cut rates as inflation falls. What the BoJ and its colleagues share is a determination to proceed with caution as the economic landscape remains uncertain.

The name of the game for central banks is to achieve 2% inflation in a sustainable manner. For the Federal Reserve, Bank of England and most other major central banks, this means pushing inflation lower. For the BoJ, its means tightening policy after decades of deflation and interest rates around zero.

The path to raise inflation hasn’t been easy. Core CPI for April, which came out on Friday, slowed for a second straight month and fell to 2.2% y/y, down from 2.6%. This matched the market estimate. The headline reading eased to 2.5% y/y, down from 2.7% in March.

BoJ Governor Ueda said on Monday that the central bank faces “uniquely difficult” challenges in tightening policy, but that progress had been made in “moving away from zero and lifting inflation expectations”.

In March, the BoJ lifted rates out of negative territory for the first time in eight years but interest rates remain around zero and the US/Japan rate differential has kept the yen at low levels. The BoJ is expected tread very carefully and the next interest rate hike, which is expected before the end of the year, will likely be a modest 0.1% move.

USD/JPY technical

• There is resistance at 157.69 and 158.37.

• 156.59 and 155.91 are the next support levels.