Bank of Japan Governor Kazuo Ueda said this morning he would consider a monetary policy response if yen weakness causes a surge in inflation.
When at a Parliamentary Committee meeting Ueda was asked how the bank would act if the yen falls further, he said it should consider changing monetary policy whether there is a risk that wages and inflation could rise more than expected, pushing up inflation above 2%.
It is worth noting that in January the core Consumer Price Index (CPI) in Japan rose 1.6% year-on-year, while in March it already hit 2.4%.
The nationwide core CPI rose 2.0% in January and 2.8% in February year-on-year.
In other words, Japanese financial authorities have one more reason to support the national currency.
Rising inflation in the long run may be one of the conditions for the country to exit from neutral rates and shift to positive borrowing costs.
Such statements surely have a downward effect on the USDJPY exchange rate. If today's report on consumer price indices in the US shows a slowdown in inflationary processes in the American economy, it will be another stimulus for the USDJPY pair to weaken.
From a technical point of view, the USDJPY pair has been in a flat trend since the mid-March of this year, putting pressure on the level of 152.0 from below. So far, the Ministry of Finance and the Bank of Japan have managed to keep the pressure on this level under control, but if it is broken, the outlook for the Japanese currency will become more uncertain.
The overall recommendation is to sell USDJPY on the condition that today's report on US consumer price indices will show a slowdown in inflationary pressures in the economy.
Profits should be taken at the level of 151.4. A Stop-loss could be set at the level of 152.0.
The possible loss should not exceed 2% of your deposit funds.
This content is for informational purposes only and is not intended to be investing advice.
