Yen rises after strong Household Spending

The Japanese yen has posted slight gains on Tuesday. In North American trade, USD/JPY is trading at 108.63, down 0.16%.

Consumer spending jumps

There was positive news as Japanese Household Spending outperformed in March, with a gain of 6.2%, year-on-year. This easily beat the estimate of 1.4% and was the biggest gain since September 2019. The month-on-month numbers were also strong, as the gain of 7.2% crushed the estimate of 2.1%.

Despite these encouraging numbers, economic activity remains hampered by health restrictions due to Covid. A lockdown in April resulted in department stores being closed and limited travel, so Household Spending could well show a downturn in the April data.

The Japanese economy hasn’t been overly impressive, but that hasn’t stopped the Japanese yen from jumping on the bandwagon and making strong inroads against the US dollar. The yen has climbed 2.0% since April 1, after recording sharp losses against the dollar in January-March period.

Inflation concerns have been the focus of the financial markets this week, sending equities lower and boosting safe-haven assets. As both the US dollar and Japanese yen fit this definition, both the yen and dollar could stand to gain if inflation fears worsen. The US and China, the world’s two biggest economies are both showing signs of rising inflationary pressures, which is causing jitters for investors.

In China, PPI for April climbed 6.8% (YoY), above the 6.5% forecast and up sharply from 4.4% in March. The US releases April inflation numbers on Wednesday. The consensus stands at 2.3% for Core CPI (YoY), compared to 1.6% in March. If Core CPI matches or exceeds the estimate, investors may be of the opinion that the Fed may have to tighten policy sooner rather than later, which would be bullish for the US dollar.

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USD/JPY Technical

• USD/JPY is facing resistance at 109.42. Above, there is resistance at 110.24
• On the downside, there is support at 108.06 and 107.52

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