USD/JPY May Fall After Japan CPI if HKMA Sours Sentiment
The Japanese Yen was steady as an in-line local CPI report crossed the wires, however USD/JPY could be getting ready to decline after struggling to make progress to the upside. Japan’s headline inflation rate remained unchanged in March at +1.1% y/y as expected, down from +1.5% in April. CPI excluding fresh food was +0.9% y/y and if you also subtract energy, it was +0.5%. All as expected.
As you can see in the chart below, inflation in Japan has generally been trending higher for the past 1.5 years give or take. However, the Bank of Japan is still in the middle of its intense stimulus programme, While they have brought up the idea of a policy exit in the future, Governor Haruhiko Kuroda has reminded us that it’s too early for them to even start considering one. Earlier in the year, the Yen saw some gains when the idea was first brought up. But those quickly fizzled after Mr. Kuroda clarified that it’s still too soon.
This seems to be for the right reasons. As you can see below, inflation (ex fresh food) is still below the central bank’s price target of 2.0 percent and has some ways to go. When taking into account that the Bank of Japan may not act on policy in the near-term as it awaits stable inflation, the Japanese Yen may be vulnerable to other catalysts.
USD/JPY TECHNICAL ANALYSIS: RUNNING OUT OF UPSIDE MOMENTUM?
On a daily chart, the Japanese Yen is stuck under near-term resistance at 107.90. The pair has been slowly pushing higher since late March when it broke above a descending trend line from January. Negative RSI divergence has emerged though and it warns that momentum to the upside is ebbing. This opens the door for prices to fall or continue oscillating below resistance.
From here, immediate support is the 23.6% Fibonacci retracement at 106.78. A break below that exposes the 14.6% minor level at 105.96. If USD/JPY pushes higher above resistance, the next target could be the 50% midpoint of the retracement at 109.19. A break above that exposes the 61.8% level at 110.26.