USD/JPY steadies after taking a tumble, Tokyo Core CPI looms

USD/JPY posted gains on Thursday after dropping sharply a day earlier. In the North American session, USD/JPY is trading at 132.45, down 0.31%. Later today, we’ll get a look at Tokyo Core CPI, a key inflation measure.

Wednesday was a day to forget for the Japanese yen, which lost 1.5% against the US dollar. USD/JPY touched a high of 132.89, its highest level in a week. The US dollar was broadly higher on Wednesday and a rise in US yields helped propel USD/JPY to even higher levels. US 10-yr and 2-yr Treasury yields both hit weekly highs, and the widening of the US/Japan rate differential is weighing on the yen.

The banking crisis has eased somewhat, with no spreading of contagion since the stunning collapse of four US banks and Credit Suisse earlier this month. The markets are calmer, risk appetite has improved, and investors have moved away from the safe-haven yen in favour of riskier assets.

Tokyo Core CPI expected to ease lower

Japanese inflation indicators have been pointing downwards and the markets will be keeping a keen eye on the March Tokyo Core CPI release later today. The February release showed a sharp drop in inflation, from 4.4% to 3.4%, but the decline was not all that surprising, as government energy subsidies kicked in last month and dampened inflation. Other core CPI indicators also eased in February. The March Tokyo Core CPI is expected to continue falling, with an estimate of 3.1%.

Japanese inflation releases are closely watched, as higher inflation could force the Bank of Japan to pivot its ultra-loose policy. The central bank has insisted that the high inflation is transient and it expects inflation to fall to 2% later this year. The BoJ has said it would consider tightening policy only if there is evidence that inflation is sustainable, such as stronger wage growth. Japan’s labour unions won substantial wage hikes earlier this month, and time will tell if wage growth kick-starts the weak economy and leads to higher inflation, which could force the BoJ, under new management, to reassess its easy monetary policy.

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USD/JPY Technical

• USD/JPY is testing support at 132.60. Below, there is support at 131.12
• 133.75 and 134.48 are the next resistance lines