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Japanese Yen Retreats on Inflation Concerns, BoJ Policy in Focus

The Japanese Yen (JPY) is weakening against the US Dollar (USD), trading around 156.00 in early Monday trade. This decline is driven by worries about rising inflation in Japan.

Inflation Fears Weigh on Yen:

  • Investors are concerned that inflation in Japan is primarily caused by the weak Yen, not genuine economic growth.
  • A sustained rise in inflation above the Bank of Japan’s (BoJ) target of 2% is seen as unlikely without a wage-growth spiral.

BoJ Policy Uncertainty:

  • The BoJ’s Summary of Opinions for the April meeting suggests inflation is largely due to the weak Yen.
  • Policymakers are discussing potential scenarios for further rate hikes, but the timing remains unclear.
  • One BoJ member highlighted the importance of consumer recovery in the latter half of 2024 for determining the next policy move.

Japan GDP Data on Tap:

  • This week’s key data release for the Yen will be Japan’s preliminary Q1 GDP figures on Thursday.
  • Economists forecast a contraction of 0.4% in the quarter, following a 0.1% expansion in Q4 2023.
  • On an annualized basis, the Japanese economy is expected to shrink by 1.5%.

Technical Analysis: Yen Recovers Half of Recent Losses

  • The Yen has regained some ground, recovering 50% of its decline from the multi-year low of 160.32 against the USD in April.
  • This recovery potentially indicates suspected intervention by Japanese authorities to prevent further Yen depreciation.
  • The 200-period EMA (currently near 156.00) has acted as a support level for the USD, suggesting a potential long-term bullish trend.

RSI at a Crossroads:

  • The 14-period RSI is hovering around 60.00.
  • A decisive break above this level could signal renewed upward momentum for the USD/JPY pair.

Overall, the Yen is under pressure due to inflation concerns and uncertainty surrounding the BoJ’s monetary policy stance. The upcoming GDP data will be crucial for gauging the health of the Japanese economy. The technical indicators suggest a potential for further USD/JPY appreciation, but a break above the RSI’s 60.00 level is needed for confirmation.