USD/JPY eyes inflation, BoJ minutes

• Japan’s core inflation expected to slow to 2.5%
• US GDP expected to confirm estimate of 5.2%

The Japanese yen is in positive territory on Thursday. In the European session, USD/JPY is trading at 142.85, down 0.61%. Later today, the US releases third-estimate GDP for the third quarter, which is expected to confirm that the economy grew at an impressive rate of 5.2% q/q.

Japanese core inflation expected to ease to 2.5%

Japan’s Core CPI, which excludes fresh food but includes energy, is considered the preferred inflation gauge for the Bank of Japan. The November report, which will be released on Friday, is expected to fall to 2.5% y/y, compared to 2.9% in October.

Core CPI has exceeded the BoJ’s 2% target for 19 straight months, putting pressure on the central bank to tighten policy. The BoJ has insisted that high inflation is a result of cost-push pressures and that higher wage growth is needed to ensure that inflation is sustainable. Still, a shift in policy from the BoJ is likely a question of when rather than if, with senior BoJ officials hinting that the central bank is considering tightening its ultra-loose policy.

Japan’s government expects inflation to remain well above the target and has revised upwards its inflation forecast to 2.5% for the fiscal year starting in April. The previous forecast stood at 1.9%. The government said that the upward revision was due to a weaker yen, higher oil prices and the expected reduction in subsidies for utility costs.

The Bank of Japan will release on Friday the minutes from the meeting on October 31. At the meeting, the BoJ maintained policy but removed the 1% upper ceiling on its yield control curve (YCC) program, saying 1% would remain a reference level.

This tweak was enough to shake up the currency markets, as the yen plunged 1.78% against the US dollar on October 31, its sharpest daily loss since February. Investors will be looking through the minutes for further details about the decision to tweak YCC and any hints about future rate policy.

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USD/JPY Technical

• USD/JPY has pushed below support at 143.18 and is testing support at 142.80. Below, there is support at 142.34
• There is resistance at 143.64 and 144.02

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