Yen weakens as inflation eases

The Japanese yen weakened slightly on Tuesday, with USD/JPY trading at 144.76 in the European session at the time of writing, up 0.17% on the day.

BoJ core CPI falls to 1.8%

Is inflation falling in Japan? On Tuesday, two inflation indicators pointed to a slowdown in July. The BoJ's core CPI, closely watched by the Bank of Japan, fell to 1.8% from 2.1% in June, its lowest level in three months. The producer price index for services fell to 2.8% from a revised 3.1% in June.

Inflation in Japan has risen, suggesting that the Bank of Japan is likely to raise interest rates again. The central bank forecasts that inflation will remain around its 2% target until 2027. Today's inflation numbers may be temporary blips, but if the next inflation reports also point to a decline in inflation, this could complicate the Bank of Japan's plans to gradually normalize its ultra-loose monetary policy.

The International Monetary Fund said on Friday it supported the BoJ's move toward normalization and the pace of further rate hikes would “depend very much on the data,” with a focus on inflation, wage growth and inflation expectations. On Friday, we will take a look at the Tokyo core CPI, which is expected to remain unchanged at 2.2%.

For the markets, the Jackson Hole Symposium was “mission accomplished” because Fed Chairman Jerome Powell signaled that the Fed is ready to cut interest rates. Powell did not name the September meeting as the starting signal for rate cuts, but markets are confident that the Fed will cut rates by a quarter of a percentage point at the September 18 meeting.

The US will release an important employment report on September 6, and Goldman Sachs has stated that if the employment report is again weak, the Fed could respond with a 50 basis point cut, while a strong employment report would justify a 25 basis point cut.
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USD/JPY Technical Data

• USD/JY is testing resistance at 144.98. Above that, resistance is at 145.42
• There is support at 144.21 and 143.77

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Kenny Fisher is a highly experienced financial markets analyst with a focus on fundamental and macroeconomic analysis. His daily commentary covers a wide range of markets including forex, equities and commodities. His work has been published in major online financial publications including Investing.com, Seeking Alpha and FXStreet. Kenny has been a contributor to MarketPulse since 2012.