Japanese Yen is undermined by weaker Tokyo CPI, focus remains on US PCE Price Index

  • The Japanese Yen struggles to gain any meaningful traction amid mixed fundamental cues.
  • The softer Tokyo Core CPI undermine the JPY, though the cautious mood acts as a tailwind.
  • A bullish USD lends support to the USD/JPY pair ahead of the crucial US PCE Price Index. 

The Japanese Yen (JPY) drifts lower against its American counterpart for the second straight day after data released on Friday showed that consumer inflation in Japan's national capital decelerated sharply in January. In fact, the Tokyo core Consumer Price Index (CPI) fell below the Bank of Japan's (BoJ) 2% target for the first time in nearly two years, validating policymakers' view that cost-push pressures will continue to ease in coming months. This, in turn, undermines the JPY, which, along with a bullish US Dollar (USD), remains supportive of the bid tone surrounding the USD/JPY pair through the early part of the European session. 

That said, the BoJ's hawkish tilt on Tuesday, suggesting that conditions for phasing out huge stimulus and pulling short-term interest rates out of negative territory were falling into place, acts as a tailwind for the JPY. Furthermore, persistent worries about geopolitical tensions stemming from conflict in the Middle East and the uncertain global economic outlook could benefit the safe-haven JPY amid narrowing US-Japan rate differential. This, in turn, warrants caution before placing fresh bullish bets around the USD/JPY pair. 

Traders migh also opt to wait for the release of the US Personal Consumption Expenditures (PCE) Price Index, which might provide cues about the Federal Reserve's (Fed) future policy decisions. The outlook will play a key role in influencing the near-term USD price dynamics and provide a fresh directional impetus to the USD/JPY pair. In the meantime, diminishing odds for a more aggressive Fed policy easing assists the USD to stand tall near the monthly peak and lends support to the USD/JPY pair. 

Daily Digest Market Movers: Japanese Yen remains on the defensive in the wake of weaker Tokyo CPI

  • The Japanese Yen ticks lower after the Statistics Bureau reported that the Tokyo core CPI, which excludes volatile fresh food prices, decelerated from 2.1% to 1.6% annualized pace in January, or the lowest in nearly two years.
  • A core figure that excludes both volatile fresh food and energy prices and is closely watched by the Bank of Japan as a gauge of the underlying inflation rose by 3.1% from a year earlier as compared to the 3.5% rise in the prior month.
  • Overall CPI inflation in Tokyo grew by a 1.6% YoY rate in January, down from a 2.7% increase in the previous month, also hitting its lowest level since March 2022 and dashing hopes for an imminent shift in the BoJ's policy stance.
  • The minutes of the December BoJ meeting showed that board members agreed on the need to deepen the debate on the timing of an exit from its ultra-loose monetary policy, which, in turn, helps limit deeper losses for the JPY.
  • Japan's Minister of Finance Sunichi Suzuki said on Friday that the government and the BoJ are working closely together based on the need to achieve the 2% inflation target stably and sustainably.
  • Investors further scaled back expectations for a more aggressive policy easing by the Federal Reserve after data released on Thursday showed that the US economy grew at a faster-than-anticipated rate in the fourth quarter.
  • The world's largest economy expanded at an annual rate of 3.3% during the September-December period, validating the view that the economy is in good shape and giving the Fed more headroom to keep rates higher for longer.
  • Additional details of the report indicated that inflation pressures are receding and supported bets that the economy is likely to avoid a recession, dragging the US Treasury bond yields lower and capping gains for the US Dollar.
  • Traders now look to the US Personal Consumption Expenditures Price Index for cues about the Fed's future policy decisions, which will drive the USD and provide a fresh impetus to the USD/JPY pair on the last day of the week.

Technical Analysis: USD/JPY struggles to capitalize on its modest intraday gains, bullish bias seems intact

From a technical perspective, spot prices, so far, have managed to defend the 100-day Simple Moving Average (SMA) pivotal support near the 147.55 region. Any further decline is more likely to attract some buyers near the 147.00 round figure, which should help limit the downside for the USD/JPY pair near the 146.45 area, or the weekly trough touched on Wednesday. Some follow-through selling, however, will shift the near-term bias in favour of bearish traders and pave the way for a slide towards the 146.10-146.00 horizontal support. The downward trajectory could extend further towards the 145.30-145.25 intermediate support en route to the 145.00 psychological mark

On the flip side, the 148.00 mark is likely to act as an immediate barrier ahead of the 148.20-148.25 region. The next relevant resistance is pegged near the 148.80 region, or a multi-week high touched last Friday, which if cleared will be seen as a fresh trigger for bullish traders. Given that oscillators on the daily chart are holding comfortably in the positive territory, the USD/JPY pair might then aim to surpass an intermediate hurdle near the 149.30-149.35 zone and reclaim the 150.00 psychological mark.

Japanese Yen price this week

The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies this week. Japanese Yen was the strongest against the Euro.

USD   0.43% -0.09% 0.29% 0.12% -0.40% 0.16% -0.21%
EUR -0.43%   -0.52% -0.15% -0.32% -0.83% -0.27% -0.63%
GBP 0.09% 0.52%   0.37% 0.20% -0.30% 0.27% -0.11%
CAD -0.29% 0.15% -0.37%   -0.16% -0.68% -0.11% -0.49%
AUD -0.12% 0.32% -0.21% 0.17%   -0.50% 0.06% -0.31%
JPY 0.39% 0.82% 0.34% 0.67% 0.51%   0.56% 0.19%
NZD -0.16% 0.25% -0.27% 0.10% -0.06% -0.58%   -0.39%
CHF 0.21% 0.63% 0.12% 0.48% 0.31% -0.20% 0.36%  

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

Economic Indicator

United States Personal Consumption Expenditures - Price Index (YoY)

The Personal Consumption Expenditures (PCE), released by the US Bureau of Economic Analysis on a monthly basis, measures the changes in the prices of goods and services purchased by consumers in the United States (US). The YoY reading compares prices in the reference month to a year earlier. Price changes may cause consumers to switch from buying one good to another and the PCE Deflator can account for such substitutions. This makes it the preferred measure of inflation for the Federal Reserve. Generally, a high reading is bullish for the US Dollar (USD), while a low reading is bearish.

Read more.

Next release: 01/26/2024 13:30:00 GMT

Frequency: Monthly

Source: US Bureau of Economic Analysis

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