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[MARKET ANALYSIS] USD/JPY regains 157.00 handle following cooler Tokyo CPI

The cooler-than-expected Tokyo CPI has contributed to the recent rebound of USD/JPY above the critical 157.00 level after a significant selloff.

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[MARKET ANALYSIS] USD/JPY regains 157.00 handle following cooler Tokyo CPI

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  • DXY rebounds, albeit modestly, as G10s give back some of Thursday’s gains. To recap, the index weakened by a near 1%, primarily driven by surging JPY and the risk-on sentiment across equities. Currently, DXY trades at the upper end of a 98.13-98.18 range.
  • EUR/USD trades around the unchanged mark, oscillating in a tight 1.1724-1.1736 range. The ECB kept rates unchanged at 2.0% and stuck to its data-dependent and meeting-by-meeting guidance. Following the meeting, ECB sources via Reuters noted that policymakers see a June hike as very likely with further reporting by Bloomberg stated that officials see a June hike if energy prices do not ease first.
  • GBP/USD rotates in a 1.3599-1.3609 band, consolidating after the hawkish tilt by the BoE, with Pill voting for a 25bp hike. EUR/GBP has extended to a trough of 0.8618 thus far, just shy of the YTD lows of 0.8612.
  • USD/JPY climbs back above the 157.00 handle, following Thursday’s 2.4% selloff. The selloff came amid jawboning and the confirmation of intervention by Japanese officials. Top FX Diplomat Mimura spoke again, however, refused to comment on intervention speculation. A Mizuho analyst highlights that despite the recent JPY strength, it is likely to remain weak as long as tensions in the Middle East persist. On the data front, Tokyo CPI printed cooler-than-expected, with core CPI falling to 1.5% Y/Y (exp. 1.8%, prev. 1.7%). USD/JPY steadily moved higher to a peak of 157.31; final manufacturing PMI failed to spur a reaction.
  • Antipodeans trade with mild losses. Aussie/Dollar was little moved after manufacturing PMI printed at 51.3 (prev. 51.0).
Context

This suggests that Japanese inflation is not heating up as anticipated, potentially dampening expectations for aggressive monetary policy, thereby supporting a weaker yen in the context of ongoing geopolitical tensions.

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