Japanese Yen Shrugs as BoJ Core CPI Ticks Lower
Traders have experienced a volatile journey with the Japanese yen throughout most of July, but the yen has remained tranquil this week. During the European session on Tuesday, the USD/JPY pair is currently valued at 141.36, showing a decrease of 0.08% compared to the previous day.
The Bank of Japan's measure of inflation falls to 3.0%.
In June, the Bank of Japan's favored gauge for measuring inflation, known as BoJ Core CPI, decreased slightly to 3.0%, compared to 3.1% in May. This outcome aligned with market expectations. While the Japanese yen didn't experience significant movement, traders remain vigilant about upcoming inflation updates in anticipation of the BoJ meeting on Friday.
The issue of rising prices has become a popular subject in Japan, despite the fact that inflation is currently at a relatively low rate of 3%. This is lower compared to other major economies. Not too long ago, Japan was dealing with deflation and reports of inflation had little effect on their monetary policies. However, the situation has changed due to the war in Ukraine, and inflation remains above the desired target of 2%. As a result, there is now pressure on the Bank of Japan to implement stricter policies. In June, the overall increase in prices reached 3.3%, surpassing the 3% rate in the US. This is the first time since 2015 that Japan has experienced higher inflation than the United States.
The Bank of Japan is expected to keep its current policies unchanged at its meetings on Friday. However, the Bank of Japan has surprised the markets before, and a recent report by Reuters suggests that the decision on whether to change policies or not could be a difficult one. If the Bank of Japan were to take any action, it would likely be a small adjustment to its yield curve control policy. Last year, the central bank expanded the range for government bonds from 0.25% to 0.50%, causing the yen to increase significantly. If the Bank of Japan were to further widen the range to 0.75%, it is likely that we would see a significant increase in the struggling yen.
Later today, the United States will unveil its latest figures on consumer confidence and manufacturing. Analysts anticipate positive improvements in both areas. The Conference Board Consumer Confidence index, which experienced a significant boost in June reaching 109.7, is projected to rise even further to 111.8 in July. Similarly, the Richmond Fed Manufacturing index, which had been consistently stuck in negative territory, is anticipated to show signs of progress by moving up to -2 in July, compared to -7 in June.
