The Japanese yen has lost ground for a second straight day. In the North American session, USD/JPY is trading at 110.29, up 0.41% on the day.
BoJ can’t get a handle on inflation
Bank of Japan minutes are invariably a tame affair, and there were no surprises contained in the minutes from the June meeting. At that meeting, the Bank maintained its monetary policy and introduced a new plan to combat climate change. The minutes went into some detail about the discussion policymakers had with regard to the outlook inflation. The word “clueless” might be a tad harsh, but it’s no exaggeration to say that Bank officials are confused when it comes to setting an inflation policy.
The reason is that inflation indicators are not presenting a clear picture. The improvement in the global economy in recent months has led to a rise in commodity prices, and this has been reflected in domestic wholesale inflation. Companies are grappling with higher prices, but there is a general reluctance to pass on these costs to the consumer, which has meant that CPI continues to hover at low levels.
Will consumer inflation rise in the coming months? The minutes indicated that Bank policymakers disagree on that key point. One view is that CPI will rise as the consumer demand recovers from Covid, while other members argued that wage growth is weak and a “deflationary frame of mind” could dampen any inflationary pressures. As well, some members expressed concern that if companies do not pass on higher costs to consumers, this could translate into weaker economic growth.
Given the lack of clarity from the BoJ and the weak economy, it seems that the yen has only its safe haven status to attract investors; if the gobal Covid picture worsens and investors lose their appetite for risk, the yen could rebound.
- USD/JPY is putting some pressure on 110.62. Next, there is resistance at 111.15
- On the downside, there is support at 109.64. Below, we find support at 109.19
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