The Japanese yen has started the week in positive territory. In the European session, USD/JPY is trading at 110.38, down 0.17% on the day.

BoJ inflation outlook eyed

Inflation has become a buzzword across the globe, as countries reopen their economies, to varying degrees. The Federal Reserve has held fast to its script that inflation is transitory, even with a surge in inflation in recent months. Although many investors and even some Fed presidents feel that the Fed should be more hawkish and tighten policy, Jerome Powell has not changed his stance, insisting that inflation will ease.

In Japan, domestic wholesale inflation has risen, as commodities and raw material prices have increased. In the case of consumer inflation, however, companies have been reluctant to pass on higher costs to the consumer. Wages in Japan have shown little growth, and the government has been unable to remove the ‘deflationary mindset’ despite years of zero interest rates and stimulus. BoJ Core CPI, the Bank’s preferred inflation gauge, came in at a negligible 0.1% in May, up from a zero reading in April.

The BOJ minutes from the June meeting, which were released last week, indicated that bank members were divided on whether CPI would rise in the coming months. One view was that CPI will rise as consumer demand recovers from Covid, while other members argued that wage growth would dampen any inflationary pressures. If the central bank isn’t clear on the direction of consumer inflation, then it’s no wonder that the market has no idea what to expect on the inflation front.

Will the BoJ Summary of Opinions shed some light on this issue? This report, which will be released on Tuesday, will focus on the views of bank policymakers that were expressed at the July meeting. Investors will be particularly interested in the BOJ’s inflation projection.


USD/JPY Technical

  • USD/JPY faces resistance at 111.07. Next, there is resistance at 111.59
  •  On the downside, there is support at 109.55. Below, we find support at 108.55