USDJPY Gains Continue Ahead of Inflation Data

USDJPY has been pushing higher after a breakout in early April, and we are awaiting inflation data. 

USDJPY – Daily Chart

USDJPY – Daily Chart 

The USDJPY pair is trading at 154.40 and will look to test the recent resistance with the inflation data. Weakness would see the pair return to 151.91. 

Japanese inflation data will be released at 7:30 a.m. HKT, and markets expect a reading of 2.7%, which will be lower than the previous month’s reading of 2.8%. 

The annual inflation rate climbed to 2.8% in February 2024 from 2.2% in the prior month, increasing for the first time in four months and the highest since last November. The rise was mainly due to external effects, such as energy subsidies introduced by the government in February 2023. 

Japanese companies have been said to have agreed to raise wages by 5.2% on average this year, the most significant rise in over 30 years, according to the country’s largest union group, Rengo. The annual “shunto” labour offensive guides spending and durable inflation. It is a crucial factor followed by the Bank of Japan when it sets its monetary policy. 

“The tide of wage hikes is firmly in place,” Rengo said. Bank of Japan Governor Kazuo Ueda has previously said sustained wage growth and inflation are crucial for ending the ultra-loose monetary policy of zero-bound interest rates. 

“Wage hikes are much faster than expected probably because of high import costs and government pressure on boosting pay,” said Takahide Kiuchi at Nomura Research Institute. 

“If the ongoing yen weakening pushes up inflation, the Bank of Japan may bring forward the timing of its next rate hikes to the summer even though monetary policy won’t target currencies.” 

USDJPY continues to advance, but any move forward in rate policy could change that. The central bank could also intervene through comments or yen purchases to stabilise import costs with the US, the country’s third-largest trade partner.

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