USDJPY will face domestic inflation numbers on Friday.
USDJPY – Daily Chart
The US dollar has been advancing against the yen since January. It can head to the 137.80 level on the current trend.
Japan will see if its inflationary pressure will continue after last month’s 4% reading. The economy has seen inflation rise from 0.5% in January 2022, and policymakers have resisted any action on rates.
Japanese central bankers were holding off until the annual pay assessment from corporations, and Japanese motor industry giants Toyota and Honda said they have agreed to give their workers the most significant pay rises in decades. The companies are the latest in Japan to increase wages as prices hit their highest levels in 40 years.
The efforts to help workers can also create a further inflation spiral, and the BOJ may be close to a rate hike.
Bank of Japan (BOJ) board member Naoki Tamura said yesterday that there was a risk of an overshoot in inflation and the timing of an end to the bank’s ultra-loose monetary policy on future data.
He added that the central bank will consider the pros and cons of its current policy framework as it considers additional steps at its meeting in March after the market’s breached the 10-year bond yield cap.
“It’s true that at present, the deterioration seen in bond market function has not been fixed,” Tamura said.
“We’ll take into account economic, price, and wage developments at the time” in determining the timing for normalising monetary policy, he added.
The comments come as traders consider the potential that the BOJ will end its yield curve control (YCC) policy and start hiking interest rates when Governor Haruhiko Kuroda’s term ends in April. Traders should consider that timeframe; the USD is a possible extended play with inflation. Still, a yen surge due to higher rates could come sooner rather than later.
Friday’s US session has PCE inflation data, and traders will watch closely after the recent stubborn inflation numbers. The core PCE number is expected to dip to 4.3% from last month’s 4.4%.