Japanese yen lower, Tokyo Core CPI next

The Japanese yen has posted losses on Thursday.  In the North American session, USD/JPY is trading at 149.84, up 0.48% on the day.

Tokyo core CPI expected to ease to 2.3%

Inflation has been steadily moving higher in Japan and January’s inflation data reflects the upward trend.  The consumer price index climbed to 3.2%, a 19-month high, and the producer price index and the BoJ Core CPI both accelerated in January compared to a month earlier.  Next up is Tokyo Core CPI, which is considered the leading inflation indicator.

After accelerating for three consecutive months, Tokyo Core CPI is expected to reverse course and drop to 2.3% y/y in February, down from 2.5% in January.  A drop in inflation would ease pressure on the Bank of Japan to raise interest rates.  The BoJ meets on March 19 and is likely to remain on the sidelines, but the markets are expecting further rate hikes during the year.

The BoJ has become an outlier in its tightening cycle and this is boosting the yen as the Fed isn’t looking at lowering rates with the US economy humming and inflation under control.  This means the US/Japan rate differential should decrease which is bullish for the Japanese yen.

US GDP expanded at 2.3%

The US economy grew 2.3% y/y in the fourth quarter of 2024, according to second-estimate GDP. This was unchanged from the initial estimate and was lower than the 3.2% gain in the third quarter.  This was the softest pace of growth in three quarters.  The main driver of growth was personal consumption, which rose 4.1%, confirming the initial estimate and the highest since Q1 2023.

In the US, unemployment claims soared to 242 thousand in the third week of February, above the market estimate of 221 thousand and higher than 220 thousand in the previous week. The Federal Reserve will not lose sleep over one soft report but will be keeping a close eye on the strength of the labor market.

USD/JPY Technical

• USD/JPY is testing resistance at 149.30.  Above, there is resistance at 150.03
• There is support at 148.30 and 147.57

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