USD/JPY Near 156.70; BoJ Targets 2% Inflation

USD/JPY Near 156.70; BoJ Targets 2% Inflation

Key Points:

  • USD/JPY Dynamics: Close to 156.70 with potential bearish reversal; resistance at 157.30 and support at 156.40.
  • BoJ Governor Ueda’s Remarks: Progress was noted in raising inflation expectations; re-anchoring at the 2% target is crucial.
  • US Dollar Index Movement: Traded near 104.70; decline influenced by lower 10-year US Treasury yield and improved risk sentiment.

On Monday, Bank of Japan (BoJ) Governor Kazuo Ueda made significant remarks about Japan’s economic outlook and the BoJ’s monetary policy stance. He highlighted that there has been noticeable progress in moving away from a zero-inflation environment and raising inflation expectations among the public and businesses.

However, Ueda stressed the importance of re-anchoring these expectations at the BoJ’s 2% inflation target. He further emphasised that the BoJ will proceed cautiously in its policy adjustments, aligning its approach with other central banks that utilise inflation-targeting frameworks.

Dollar Index at 104.70 Amid 4.46% Treasury Yield

On Friday, the US Dollar Index (DXY) saw movement, trading near 104.70. The greenback lost some ground, influenced by a 10-year US Treasury yield decline, which fell to 4.46%. Additionally, there was an improved risk sentiment following softer data from the University of Michigan’s 5-year Consumer Inflation Expectations for May. This softer inflation expectation data contributed to a more positive outlook among investors, impacting the demand for the dollar.

USD/JPY Resistance 157.30, Support 156.40

The USD/JPY currency pair traded close to 156.70 on Monday. Technical analysis indicated a potential bearish reversal, suggested by a rising wedge pattern. Despite this, the 14-day Relative Strength Index (RSI) maintained a slightly bullish bias, staying above 50.

Furthermore, key price levels for USD/JPY include resistance at 157.30, which marks the upper boundary of the rising wedge, and at 160.32, the highest point in over thirty years. Support levels are identified at 156.40 (nine-day EMA), 156.00 (psychological level), and 151.86 (throwback support).

BoJ Eyes Tightening as Japan Inflation Tops 2%

Japan’s annual inflation rate exceeds the BoJ’s 2% target, creating a sustained inflationary trend. This persistent inflation pressures the BoJ to consider tightening its monetary policy. Governor Ueda has underscored the necessity for a stable and sustained 2% inflation target and robust wage growth as prerequisites for any significant policy normalisation. The BoJ’s cautious approach reflects its commitment to achieving these economic conditions before making substantial policy changes.

BoJ’s Inflation Targeting: Impact on USD/JPY

Japan’s inflation dynamics and USD/JPY movements highlight the complex relationship between monetary policy, market sentiment, and economic indicators. BoJ Governor Kazuo Ueda’s comments highlight a cautious yet deliberate approach to re-anchoring inflation expectations at the 2% target, while the US Dollar Index’s movements reflect broader economic influences. The BoJ’s alignment with global inflation targets will be crucial for market observers and policymakers as events unfold.