Yens Free Fall Resumes Post-BoJ; Dollar Eyes PCE Inflation Data For Rescue

Japanese Yen resumes its free fall today, after a brief pause, and reaches new 34-year low against Dollar. Yen’s weakness is also broad-based and evident against other major currencies, with EUR/JPY marching towards its 2008 high and GBP/JPY heading to its 2015 peak. It’s clear that the absence of strong verbal interventions from Japanese officials has emboldened Yen bears. At the same time, BoJ’s announcements failed to introduce any hawkish shifts that might have supported the currency.

BoJ’s updates included revised projections that see core-core inflation increasing to 2.1% by fiscal 2026, a development that BoJ views as a positive for inflation outlook. Meanwhile, there were substantial revisions in growth (downgraded) and inflation (upgraded) forecasts for fiscal 2024. Earlier data showed significant drop in Tokyo’s inflation rates due to a one-off factor. But these are not the main drivers for Yen’s decline.

Meanwhile, Dollar is positioned among the weakest performers after failing to sustain gains from a brief rebound overnight. Market focus is shifting to the upcoming US PCE inflation data. Stocks markets fell notably while treasury yield surged after yesterday’s GDP report triggered repricing of Fed rate cut expectations. Odds of Fed keeping interest rates unchanged in September is now up at around. Be these developments have yet to provide a lasting boost to Dollar.

Technically, NASDAQ was rejected by 55 D EMA on first attempt, but there was no follow through selloff after initial dive overnight. While risk stays on the downside for now, the question is whether 38.2% retracement of 12543.85 to 16538.86 at 15015.67 (or simply 15k mark) could provide enough support. Firm break of 55 D EMA would set the range for a sideway consolidation pattern.

In Asia, at the time of writing, Nikkei is up 1.11%. Hong Kong HSI is up 1.94%. China Shanghai SSE is up 0.88%. Singapore Strait Times is down -0.05%. Overnight, DOW fell -0.98%. S&P 500 fell -0.46%. NASDAQ fell -0.64%. 10-year yield rose 0.054 to 4.706.

BoJ stands pat, lower growth and higher inflation this year

BoJ left overnight call rate unchanged at 0-0.10% as widely expected, by unanimous vote. The BOJ says it will continue its Japanese government bond (JGB) purchases “in accordance with the decisions made at the March 2024 monetary policy meeting.”

Real GDP growth forecasts for fiscal 2024 was lowered sharply to 0.8%. But growth is expected to pick up moderately to 1.0% subsequently. CPI core forecasts was fiscal 2024 was raised to 2.8% and then slowed to 1.9% onwards. CPI core- core forecasts were left unchanged for both fiscal 2024 and 2025 at 1.9%. Fiscal 2026 CPI core-core is projected to pick up to 2.1%, which is a positive sign.

Real GDP growth forecasts:

• Fiscal 2024 at 0.8% (downgraded from 1.2%).
• Fiscal 2025 at 1.0% (unchanged).
• Fiscal 2026 at 1.0% (new).

CPI core forecasts:

• Fiscal 2024 at 2.8% (upgraded from 2.4%).
• Fiscal 2025 at 1.9% (upgraded from 1.8%).
• Fiscal 2026 at 1.9% (new).

CPI core-core forecasts:

• Fiscal 2024 at 1.9% (unchanged).
• Fiscal 2025 at 1.9% (unchanged).
• Fiscal 2026 at 2.1% (new).

Japan’s Tokyo CPI falls sharply to 1.6% yoy in Apr, vs exp 2.2% yoy

Japan’s Tokyo CPI showed significant slowdown in April. CPI core (excluding food) dropped from 2.4% yoy to 1.6%, substantially below the expected 2.2% yoy.

CPI core-core, which excludes both food and energy, also slowed from 2.9% yoy to 1.8% yoy, marking the slowest pace since September 2022.

Services inflation, a significant component of the CPI, decreased from 2.7% yoy to 1.6% yoy. This notable drop is largely attributed to policy interventions by the Tokyo metropolitan government to make some educational tuition free.

Overall headline CPI, which includes all items, also fell from 2.6% yoy to 1.8% yoy.

Looking ahead

Eurozone M3 money supply will be released in European session. Main focus will be on US personal income and spending, and PCE inflation later in the day.

USD/JPY Daily Outlook

Daily Pivots: (S1) 155.32; (P) 155.53; (R1) 155.87; More…

USD/JPY’s fall continues today and intraday bias remains on the upside. Next target is 100% projection of 140.25 to 150.87 from 146.47 at 157.09. On the downside, below 155.30 minor support will turn intraday bias neutral first. But outlook will stay bullish as long as 153.58 support holds, in case of retreat.

In the bigger picture, current rise from 140.25 is seen as the third leg of the up trend from 127.20 (2023 low). Next target is 100% projection of 127.20 to 151.89 from 140.25 at 164.94. Outlook will remain bullish as long as 150.87 resistance turned support holds, even in case of deep pullback.

Economic Indicators Update