During the early Asian trading hours on Tuesday, the USD/JPY pair extends its rally around 156.20. Notably, the Japanese Yen is losing ground against the US Dollar (USD) despite the hawkish signal from the Bank of Japan (BoJ) regarding a reduction in purchases of Japanese government bonds on Monday and the downbeat Nonfarm Payrolls (NFP) for April last week.
Investor focus shifts towards key US economic data releases scheduled for this week, including the Producer Price Index (PPI), Consumer Price Index (CPI), and Retail Sales figures. These reports are anticipated to provide insights into the trajectory of inflation, whether it remains stubborn, recedes somewhat, or potentially increases. The PPI figure, expected to rise 2.2% YoY in April, along with the core PPI excluding energy and food costs projected to increase by 2.4% YoY, are pivotal indicators that traders will utilize to gauge the potential outcome of the CPI report. Should the data exceed expectations, it could fuel further strength in the USD against the Japanese Yen.
Despite the BoJ’s hawkish stance, indicated by a reduction in the amount of Japanese government bonds (JGBs) offered in a regular purchase operation, the impact on the Yen has been limited. This move is anticipated to exert upward pressure on Japanese bond yields, potentially narrowing the gap between Japan and the United States, thereby weakening the JPY. However, the recent market reaction has been subdued. Looking ahead, Japan’s GDP growth number for Q1 2024, set to be released on Thursday, could sway the Yen’s direction. A stronger-than-expected reading might bolster the JPY and constrain the upside of the USD/JPY pair in the near term.
