Yen extends gains, BoJ Core CPI lower than expected

The Japanese yen has rallied for a third straight day. In the European session, USD/JPY is trading at 140.38, down 0.33% on the day. The yen has climbed 1.3% since Thursday, as the US dollar is under pressure against the major currencies.

BoJ Core CPI remains at 2.2%

BoJ Core CPI, a key inflation indicator, remained at 2.2% for a third consecutive month in March, shy of the forecast of 2.4%. This follows Japan's National Core CPI, which rose 3.2% y/y, matching expectations but higher than the 3.0% gain in February. National CPI eased to 3.6%, down from 3.7% in February and below the market estimate of 3.7%.

The inflation data comes a week before the BoJ's policy meeting next week. The central bank has signaled that it will continue to raise interest rates as wages and inflation have been rising. However, the risks to inflation and growth from US tariffs have muddied the rate outlook and the BoJ may decide to push off another hike until later in the year.

US and Japan meet to de-escalate trade war

The finance ministers of Japan and the US will meet later this week, as Tokyo looks to carve out some tariff exemptions. The BoJ is likely to sit tight and see if the talks lead to a breakthrough. The US is expected to bring up the exchange rate, as President Trump has accused Japan of deliberately keeping the yen weak in order to protect its export sector.

There are no key releases out of the US today, but we'll hear from three FOMC members later today. The markets have priced in a rate cut in May at 10%, with a 62% probability of a rate cut in June.

USD/JPY technical

• USD/JPY tested support at 140.18 earlier. Below, there is support at 139.49.
• There is resistance at 141.16 and 141.85.