Home Forex Market Analysis USDJPY Forecast as Japan’s Producer Inflation Rockets Higher

USDJPY Forecast as Japan’s Producer Inflation Rockets Higher

USDJPY Forecast as Japan’s Producer Inflation Rockets Higher

The USDJPY has been under pressure this week as investors reflect on the recent mixed economic situation in Japan and the United States. The pair is trading at 110.37, which is substantially lower than last week’s high of 110.80.

US inflation data

The USDJPY retreated on Thursday after the US published relatively weak inflation numbers. Data published by the Labor Department revealed that the month-over-month consumer price index (CPI) declined in July. The core CPI, which excludes food and energy prices also declined on a MoM and YoY basis. 

Precisely, the headline CPI remained unchanged at 5.4% while core CPI declined from 4.5% to 4.3%. Still, these numbers are significantly higher than the Federal Reserve’s target of 2.0%. They are also close to the highest level in more than a decade.

These inflation numbers signal that the Federal Reserve was right in its forecast about inflation. While the overall inflation has jumped above the bank’s target, Jerome Powell has insisted that the situation is temporary. 

The numbers came at an important time for the American economy. The number of Covid-19 cases has been in a strong upward trend. Worse, the number of breakthrough cases has also been rising. Further, some states have started vaccine and mask mandates, signalling that some industries will be affected.

New Covid wave

Some key sectors have started being affected by the new wave. For example, in a statement on Wednesday, Southwest Airlines warned about its guidance. The company said that it had started seeing more cancellations in the past few weeks. 

This is notable since the aviation sector has a correlation with other areas of the economy like tourism, hotels, and restaurants. These are some of the biggest employers in the country.

The USDJPY also reacted to the mixed economic data from the US. For example, while inflation is easing, recent data showed that the labor market is relatively strong. The economy added more than 940k in July while the unemployment rate declined to 5.3%. Further data showed that the number of vacancies has jumped to more than 10 million. 

On Thursday, the US will publish the latest producer price index (PPI) data. Analysts expect the data to show that the PPI remained unchanged at 7.3% in July while the core PPI remained at 5.6%. 

Meanwhile, in Japan, data showed that the PPI bounced back in July, possibly because of the Olympics. The headline PPI rose from 0.6% to 1.1% on a month-on-month in July. This, in turn, led to an annualised pace of 5.6%, which was higher than the previous 5.0%. Still, the gap between the PPI and CPI in Japan is relatively wide.

Further data showed that business sentiment in Japan rose in July as the government lifted some of its state of emergency measures. The economy watchers sentiment rose to 48.4 in July. Still, there are concerns that the restrictions will remain.

USDJPY technical analysis

The four-hour chart shows that the pair made a bullish breakout earlier this month. That happened as the price moved above the upper side of the descending channel. The pair rose to a high of 110.80 last week. This was the highest level since the first week of July. The pair retreated this week and is approaching the higher side of this channel. Therefore, the pair will likely keep sliding as bears target the next key support level at 110.00.

The USDJPY 4-hour chart


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