The Japanese yen is trading lower today. In the North American session, USD/JPY is trading at 143.52, up 0.44%. Japan’s Core CPI, a key inflation indicator, is expected to rise to 2.7% in August, up from 2.4% in July.
Fed, BoJ to meet later this week
Central banks will be in the spotlight this week, with the Federal Reserve meeting on Wednesday and the Bank of Japan on Thursday. The yen hasn’t posted a winning week since early August and fell to 144.99 earlier this month, its lowest level since 1998. The sharp depreciation of the yen promises to be high on the agenda at BoJ’s meeting. The yen has borne the brunt of the BoJ’s ultra-accommodative policy, which has kept a tight lid on Japanese government yields while US Treasuries are heading higher, thanks to the Fed’s continued tightening. This has left the yen at the mercy of the US/Japan rate differential, which continues to widen.
The BoJ could provide relief to the yen by tightening policy, but Governor Kuroda has repeated that he will not tighten unless there is a clear indication that inflation is broad-based and sustained. With inflation at just 2.6%, the BoJ is in no hurry to tighten, unlike other major central banks, where soaring inflation is the number one priority.
The BoJ and Japan’s Ministry of Finance have engaged in verbal rhetoric as the yen continues to slide, but without any action to back up their warnings, speculators continue to drive down the yen. After reports last week that the BoJ had conducted a rate check, speculation rose that Tokyo was considering a currency intervention, but such a drastic move still appears unlikely. The BoJ may use stronger language about its concern about the yen’s slide at this week’s meeting, but short of the Bank signalling a change in policy or hinting at intervention, the yen is unlikely to get any relief from the BoJ.
- 1.4363 is the next line of resistance, followed by 144.81
- USD/JPY has support at 142.56, followed by 141.88
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