Yen posts sharp gains as PPI hit four percent

The Japanese yen has posted strong gains for a second straight day. In the North American session, USD/JPY is trading at 146.32, down 0.79% on the day. The yen plunged 2.1% on Monday but has now recovered those losses.

Japan's PPI eases slightly to 4%

Wholesale inflation in Japan remained high, rising 4% y/y in April. This was slightly lower than the revised 4.2% gain in March and was in line with expectations. This is the fourth straight month that PPI has been at 4% or higher, as companies continued to pass on costs to consumers. Food prices have been rising, led by rice prices which have doubled over the past 12 months.

The Bank of Japan has been carefully monitoring inflationary pressures as it looks to continue hiking interest rates on the path to monetary normalization. The BoJ raised rates in January but has stayed on the sidelines since then and is in a wait-and-see mode until there is more clarity about President Trump's tariff policy. The Bank meets next on June 17.

The 90-day tariff deal between the US and China has raised hopes that Trump will reach trade deals with China and other countries. Japan sends 20% of its exports to the US, which is Japan's largest trading partner and trade talks are underway between the two countries.

Fed in a wait-and-see mode

The US inflation report was particularly important as Trump's tariffs took effect on many products in April. Inflation rose in April but was lower than expected. The full impact of the tariffs, which could send inflation lower, may not be seen until June or July.

The Federal Reserve is also in a wait-and-see mode. At last week's Fed meeting, Fed Chair Powell pushed back against Trump, who has called for the Fed to lower rates. The Fed is widely expected to hold rates at the June 18 meeting.

USD/JPY technical

• USD/JPY has pushed below support at 147.06 and 146.64. The next support level is 145.91.
• 147.79 and 148.21 are the next resistance lines.