Market Analysis

Friday’s Japanese Inflation Data Is Worth Watching

It was the view of Barclays Bank on Sunday that the prior week’s slide in dollar/yen (USDJPY) “was due to [Federal Reserve] recent dovish comments and heightening political uncertainty in the US rather than JPY strength itself.” Traders will also recall that last Friday’s CFTC data for the week ended July 18 had shown the existing of a very sizeable short yen position in the early part of last week. As Barclays noted “The [Bank of Japan] revised down its inflation forecast in the quarterly outlook report and pushed back its [estimated time] for reaching the price stability target to “around FY19” from “around FY18”, but its impact on markets were muted.” Barclays conclude that “although US political developments could weigh further on USDJPY, solid global cyclical recovery and the monetary policy divergence story should support the pair to remain in its recent 110-115 range.”

But traders cannot ignore domestic Japanese data and this Friday sees the release of Japan’s June CPI and July’s Tokyo CPI figures. Barclays estimates “that the nationwide CPI ex-perishables (core) rose 0.4% y/y in June with the risks skewed somewhat to the upside (May: +0.4%, consensus: +0.4%)” while in Tokyo the British firm estimates “that the core CPI rose 0.1% y/y in July (June: +0.1%, consensus: +0.1%).” France’s BNP Paribas also expects Japan’s core CPI (ex-perishables) to come in at +0.4 per cent. Traders might wish to keep an eye out for this data. While dollar/yen may indeed have been primarily driven recently by dollar-related factors, the yen part of the equation will undoubtedly reassert itself one way or the other. Friday’s Japanese inflation data might provide a signal.
Written by Neal Kimberley, External Currency Analyst.