The Japanese Yen has been coveted as a route to recovery against most currencies it pairs with in the forex market, especially the US dollar. The bears took over USDJPY after attaining its all-time high at $131.26 earlier in May. The bears have significantly pushed the price down over the past two weeks to its current position at $126.73 and aiming for the next support at $121.56. The bearish takeover is driven by a weakening dollar and the improvement in the Tokyo CPI data released yesterday. Moreover, an improving level of inflation, combined with CPI data turning out lower than expected are believed to have had certain amount of influence.
Highlights from the Tokyo CPI data released yesterday
Tokyo Consumer Price Index (CPI) for May fell to 2.4% YoY against the anticipated 2.7% and previous 2.5%. This shows that the inflation rate has reduced by 0.1%.
The CPI excluding Fresh Food was 1.9% y/y against the expected 2.0%. The previous figure was 1.9%.
The Tokyo CPI excluding Food and Energy was 0.9% y/y. The figure matched the expected 0.9%.
The Bank of Japan’s governor: Kuroda, observed that provided the energy prices drop sharply, the Japanese core Consumer Price Index will likely remain stable at 2% for the next 12 months. This means inflation will probably stay at its current level without further increase.
The above assurance from the Bank of Japan governor has revived confidence in the economy and opened other ways for economic growth.
What is the next step for USDJPY?
The Japanese Yen is currently very bullish because of the reduction in the inflation rate and positive economic growth. During his speech, the Japanese Prime Minister- Kishida remarked that the recent increase in costs for goods and services is driven largely by the global spike in prices for fuel and raw materials. He further stated that the government plans to proceed with efforts to help raise wages with responsibility. This indicates that a further downside is most likely expected for USDJPY prices to the next support level of $124. A price movement that falls beyond this level would suggest that the target then shifts to $121.56.