Japanese yen climbed 0.572 points, or 0.51 percent last Friday, erasing last three days loss to break lower to the 200-day average moving. The U.S. dollar even dropped to the session low during the trading time testing the support below.
In considering recent economic performance of Japan, the core consumer prices rose 0.3 percent in April from a year earlier to mark a fourth straight month of increases, giving policymakers optimism that a steady economic recovery will convince consumers to spend more.
If the effect of volatile fresh food and energy costs is stripped away, consumer prices remained unchanged in April from a year ago in a sign that companies keep worried that rising prices will result in scaring away cost-sensitive households.
Japan inflation rate hits the 3-month high of 0.4 percent year-on-year in April, following a 0.2 percent rise in March and matching market consensus. The inflation rally indicates the gradual recovery on economy and reflects positive signs have been seen regarding its ultra-loose monetary policy conducted by the Bank of Japan. The upward prices pressure is mainly driven by faster rises in cost of food (0.9 percent from 0.5 percent in a month earlier) and transport (0.3 percent from 0.2 percent) while cost of housing continued to fall.
Since there is the fact that inflation remains distant from their target (2 percent), the BOJ will likely maintain its ultra-loose monetary policy for the time being, rather than a reduction on its monetary stimulus on the near-term. Japan’s economy grew in the first quarter at its fastest pace in a year to mark the longest period of expansion in a decade, thanks to robust exports and a helpful rise from private consumption.
The U.S. economy seemed to perform not that strong enough but is still better than the forecasts after the Friday’s release of annualized GDP (1Q) and durable goods order (April). Gross domestic product growth of first quarter is set to be 1.2 percent, better than the advance estimate of 0.7 percent growth and beating market expectations of 0.9 percent, with personal consumption expenditure contributing 0.44 percent points to growth.
However, it is the lowest growth rate since the first quarter of last year. The sharply descending durable goods orders coupled with a poor economic growth indicate U.S. economy may be turning into a critical point of slowdown and thus investors need to keep a close eye on a variety of U.S. data to help provide further direction for the USD/JPY. Key high important events for this week include U.S. ISM Manufacturing (May) and the U.S. Change in Non-farm Payrolls (May).
Technically the moving of U.S dollar against Japanese yen is consolidating in a developing ascending price channel. In the event that the USD/JPY breaks lower, traders should first watch for the pair to breakout beneath yesterday’s low of 110.879. Alternatively if prices reverse higher, the USD/JPY must first break above Wednesday’s high of 112.127, then test the ascending channel line near 112.324.
Chart 1: USDJPY Daily
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