USD/JPY dips lower after BoJ Core CPI rises

• BoJ Governor Ueda says BOJ will maintain policy
• BOJ Core CPI rises to 2.9%
• US will release UoM Consumer Confidence later today

USD/JPY is trading at 133.87, down 0.28% on the day.

BoJ Core CPI climbs to 2.9%

Inflation in Japan is much lower than what we’re seeing in other major economies, but nevertheless, inflation continues to be closely watched by the Bank of Japan. There has been speculation that the central bank will make a shift in policy, given that inflation is above 3%, above the target of 2%. Earlier today, BoJ Core CPI, the preferred inflation indicator of the central bank, climbed to 2.9% in March. This was higher than expected and above the 2.7% gain a month earlier.

BoJ Governor Ueda will chair his first policy meeting on Thursday-Friday, and despite speculation that the BoJ will tighten policy, I expect Ueda to maintain all policy settings. Ueda has pledged to do just that and reiterated his “more of the same” pledge earlier today, in a speech to parliament. Ueda stated that “it’s appropriate to maintain monetary easing, now conducted through yield curve control”. The Governor repeated that monetary policy needed to remain ultra-loose in order to achieve sustainable inflation at the 2% target.

What was noteworthy in Ueda’s remarks was a nod to the possibility of raising interest rates, if wage growth and inflation climb faster than expected. This scenario doesn’t appear all that realistic given the current economic conditions. Ueda dampened any expectations of reducing the massive stimulus programme, saying that such a move could push inflation lower and undershoot expectations, which would be “very worrying”.

The US will release UoM Consumer Confidence later today. Consumer confidence is expected to come in at 104.0, little changed from the 104.2 reading in March. If the estimate is wide of the mark, we could see some movement from the US dollar.

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USD/JPY Technical

• USD/JPY continues to test resistance at 1.3427. Next, there is resistance at 1.3499
• 133.41 and 1.3269 are providing support