USD/JPY shrugs as Japan’s inflation data a mix

The Japanese yen continues to drift and showing little movement on Tuesday. USD/JPY is trading at 156.92, up 0.01% on the day at the time of writing.

Corporate service prices jumps, BoJ core CPI dips

Japanese inflation indicators have been a mix this week. The Corporate Services Price index jumped 2.8% in April, up from 2.3% in March and easily beating the market estimate of 2.3%. This was the fastest pace of growth since September 1991.

At the same time, the Bank of Japan Core CPI index, which is a preferred inflation gauge for the central bank, eased to 1.8% in April, down from 2.2% in March and below the market estimate of 2.2%. This is significant because it marks the first time the index has fallen below 2% since August 2022.

How will the BoJ respond to this mixed bag of inflation releases? The BoJ has signaled that its plans to tighten policy, but Governor Ueda hasn’t given much guidance. The markets expect at least one rate hike before the end of the year and the BoJ could start to trim the size of its bond-buying, perhaps as early as July.

The BoJ’s hawkish signals have pushed long-term interest rates higher, with the 10-year bond yield climbing to a 12-year high of 1.035%, its highest level since April 2012. The yield has exceeded the 1% threshold that the BoJ zealously defended until its landmark interest hike in March.

It is looking increasingly likely that the BoJ will tighten policy in the second half of the year, but if the cautious central bank does little more than baby steps, these moves won’t give much of a boost to the ailing Japanese yen.

USD/JPY technical

• There is resistance at 157.69 and 158.37.

• 156.59 and 155.91 are the next support levels.