- USD/JPY extends gains on Wednesday and reaches one-month highs right below 159.50.
- BoJ Governor Ueda warned about second-round effects from inflation.
- Investors will be looking at Tokyo CPI data later this week, to confirm a rate hike in June.
The Japanese Yen (JPY) keeps drifting lower against the US Dollar (USD) on Wednesday. The USD/JPY pair ticks higher for the fourth consecutive day, reaching fresh one-month highs at 159.45, and nearing the key 160.00 level, considered the limit of tolerable Yen weakness for Japanese authorities.
The market has ignored hawkish comments by Bank of Japan (BoJ) Governor Kazuo Ueda, who expressed his concerns about the second-round effects of inflation if the energy shock threatens wages, expectations, and price-setting behaviour.
These comments support the view that the central bank will raise interest rates at its June 15 meeting. The positive impact on the Yen, however, has been offset by investors’ concerns about the Japanese economy’s exposure to high Crude prices and the relatively lower Japanese Government Bond (JGB) yields.
Markets will be attentive to a string of Japanese macroeconomic data on Friday, with particular interest in the Tokyo Consumer Prices Index figures, to confirm June’s BoJ decision. Core inflation figures are expected to have remained growing at a steady pace in May, while the Unemployment Rate is seen unchanged, and retail sales are expected to have eased in April.
The US Dollar, on the other hand, remains supported by the hawkish repricing of the Federal Reserve’s stance. Recent data has eased concerns about the US labour market, prompting investors to ramp up bets of an interest rate hike before the year’s end. US Personal Consumption Expenditures (PCE) Price Index figures, due on Thursday, will be carefully analysed to contrast these views and are likely to set the US Dollar’s near-term direction.
