- Japan’s core consumer price index rose by 2.2%, which is a smaller increase than the 2.6% reported in March.
- The BoJ may not be ready to raise interest rates in June or July.
- The dollar strengthened on Thursday after data showed strong business activity in May.
USD/JPI price analysis shows higher upside potential for the pair as Japan’s soft inflation reduces chances of a BoJ rate hike. Meanwhile, the dollar headed for its biggest weekly gain in more than two months after data showed strong business activity in May.
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Core inflation in Japan slowed further in April, casting doubt on the Bank of Japan’s interest rate hike prospects. Core CPI rose 2.2%, down from the 2.6% increase reported in March. As a result, the BoJ may not be ready to raise interest rates in June or July. Policymakers have been waiting for more sustainable domestic consumption, with inflation well above the central bank’s target. However, most economic indicators point to weak consumption.
Notably, the Japanese economy shrank by 2% in the first quarter due to weak demand. If consumption remains fragile, the BoJ will be reluctant to raise interest rates and the rate gap between the US and Japan will remain wide. This could mean further yen weakness.
Meanwhile, the dollar rose on Thursday after data showed strong business activity in May, reducing Fed rate cut expectations. The US composite PMI rose from 51.3 to 54.4 in May, pointing to a resilient economy despite high interest rates. As a result, there was uncertainty about the prospects for a rate cut in the US.
USD/JPI Key Events Today
- Revised UoM consumer sentiment
USD/JPI technical price analysis: Bulls weaken below 157.00
On the technical side, the price of USD/JPI is trading in a thin range after breaking above the key resistance level of 156.50. Nonetheless, the bias is bullish as the price is above the 30-SMA and the RSI is trading slightly below the overbought level.
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However, the bulls are exhausted, as seen in the shallow slope of the current move. Moreover, the price is holding close to the 30-SMA, which is a sign that the bulls are not committed to significant changes. If this shallow trend continues, the price will retest the 158.01 resistance. However, if it reverses, the price will break below the SMA and the 156.50 level.
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