The Japanese yen is slightly lower in Monday trade. In the North American session, USD/JPY is trading at 110.28, up 0.16% on the day.
The yen is coming off its best week since April, as USD/JPY declined 0.81% last week and briefly fell below the psychologically important 110 level.
Import costs jump
Inflation in Japan has been at low levels for years, and massive stimulus programs have failed to coax inflation to move upwards. However, the surge in oil prices and the ramping up of the vaccine rollout may be the recipe for higher wholesale prices.
The Corporate Goods Price Index, which measures corporate inflation, jumped 5.0% in June YoY, after a 5.1% gain in May, which marked a 13-year high. Companies are expected to pass along higher costs to consumers, which should lead to higher inflation.
The yen has been relatively weak, and this has resulted in a surge in raw material prices. The Japan Raw Materials Price index rose 3.5% in June MM and a massive 45.4% YoY, as commodities have surged in prices due to stronger global demand. This has boosted the export sector, but the domestic economy has been sputtering, and a resurgence in Covid has led to the government declaring a state of emergency in Tokyo, which will result in no fans being allowed at the Olympics games later this month.
Over in the US, investors await the June CPI report, which will be released on Wednesday. Inflation rose by 5% in May YoY, and another sharp gain is expected for June, with a consensus of 4.9%. If CPI is within expectations, all eyes will be looking for clues from the Fed regarding a tightening of policy, which would be bullish for the US dollar.
- USD/JPY is on an upswing and faces resistance at 111.01 and 111.93
- On the upside, there is a monthly support level at 109.83. Below, there is support at 108.63