USD/JPY eases below 134.00 on upbeat Japan inflation, Ueda’s first BoJ eyed

USD/JPY fails to extend the previous day’s recovery moves, the first in three, after firmer Japan inflation data.
Tokyo Consumer Price Index rose to 3.5% YoY in April, crosses market forecasts and prior.
Risk-on mood, upbeat yields joined US Dollar rebound to previously favor Yen pair buyers.
BoJ is expected to keep monetary policy unchanged, new Governor Ueda’s speech, economic forecasts will be the key.

USD/JPY drops to 133.80 during early Friday morning in Asia as strong Japan inflation data renews hawkish bets on the Bank of Japan’s (BoJ) future moves ahead of today’s monetary policy meeting.

That said, Tokyo Consumer Price Index (CPI) came in 3.5% YoY for April versus 2.6% expected and 3.3% prior whereas Tokyo CPI ex Food, Energy, known as the Core CPI, also increased to 3.8% YoY during the said month compared to 2.9% market forecasts and 3.4% previous readings. Further details of the publication revealed that Japan’s Unemployment Rate rose to 2.8% in March versus 2.5% expected and 2.6% prior whereas the Jobs/Applicants Ratio eased to 1.32 from 1.34.

With the upbeat inflation figures, the odds of witnessing a hawkish change in the Bank of Japan’s (BoJ) future communication become brighter, which in turn weighs on the USD/JPY of late, even if the BoJ is expected to keep the current monetary policy unchanged.

As a result, Friday’s BoJ becomes crucial for the USD/JPY pair traders as the aforementioned catalysts may allow the BoJ Governor Ueda to have entertainment during the first day of the BoJ ruling. That said, Ueda’s speech and economic forecasts for the Asian major will be crucial to watch for clear directions.

Also read: Bank of Japan Preview: New governor but old policy

It’s worth noting, however, that the risk-on mood, mainly led by the strong US tech earnings and mixed US data, allowed Wall Street to have the biggest daily gain in a week. The same also propelled US Treasury bond yields and favored the USD/JPY to snap a two-day downtrend on Thursday.

The first readings of the US Gross Domestic Product (GDP) for the first quarter (Q1) of 2023, also known as Advance readings, marked mixed outcomes. That said, the headline US GDP Annualized eased to 1.1% from 2.0% expected and 2.6% prior but the GDP Price Index inched higher to 4.0% on an annualized basis from 3.9% prior and 3.8% market consensus. Further, the Personal Consumption Expenditure (PCE) Prices for Q1 rallied to 4.2% from 3.7% in previous readouts whereas the Core PCE figures also crossed 4.8% market forecasts and 4.4% prior with 4.9% mark for the said period. It should be noted that a slump in the weekly Initial Jobless Claims also allowed the US Dollar to remain firmer.

Having witnessed the initial market reaction to the Tokyo inflation numbers, USD/JPY pair traders are likely to wait for the BoJ decision even if the Japanese central bank isn’t expected to alter the current monetary policy and has already ruled out hawkish moves in the near future. The reason could be linked to Kazuo Ueda’s first meeting as a Governor and the presence of the economic forecasts for release. On Thursday, Former BoJ Deputy Governor Masazumi Wakatabe mentioned that he will be surprised if the BoJ changes Yield Curve Control (YCC) on Friday. Previously, Bank of Japan´s (BoJ) Governor Kazuo Ueda spoke in the Japanese Parliament, known as Diet, while saying that the risk of a rise in inflation is driven by lost of market trust in Japan’s finances low for now. The policymaker also tried to tame talks of inflation woes and indirectly suggests no change in this week’s monetary policy meeting, not even surrounding the YCC.

Following that, the US Core PCE Price Index for March, the Fed’s preferred inflation gauge, expected to ease to 4.5% YoY versus 4.6% prior, will be crucial to watch for the Yen pair traders, especially due to the next week’s Federal Open Market Committee (FOMC) monetary policy meeting.

Also read: US Core PCE Preview: Why this is a lose-lose situation for the US Dollar