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USD/JPY Stays Heavy Ahead With Japan's CPI Eyed

JPY

USD/JPY finished on the back foot Thursday, as both sides of the pair underperformed amid reduced demand for safe haven currencies (safe for CHF, which was boosted by domestic dynamics). The pair touched its worst levels since Apr 27 amid softer U.S. Tsy yields.

  • The risk reversal skew has shifted further towards greenback puts on Thursday, with USD/JPY 1-month 25 delta risk reversal easing to its lowest point since mid-March.
  • Spot USD/JPY trades at Y127.73, a touch lower on the day. A fall through May 19/Apr 27 lows of Y127.03/126.95 would signal potential for an extension towards the 50-EMA at Y125.77. Bulls need a rebound above May 12 high of Y130.05 before taking aim at May 9 high of Y131.35.
  • Japan's core CPI is expected to have picked up to +2.0% Y/Y in April from +0.8% prior, meeting the BoJ's target. However, it is unlikely to prompt the central bank to abandon its strategy of powerful monetary easing, as price pressures seem underpinned by statistical distortions and supply-side factors rather than wage dynamics.
  • Next week's data highlights include flash Jibun Bank PMIs (Tuesday) & Tokyo CPI (Friday).
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USD/JPY finished on the back foot Thursday, as both sides of the pair underperformed amid reduced demand for safe haven currencies (safe for CHF, which was boosted by domestic dynamics). The pair touched its worst levels since Apr 27 amid softer U.S. Tsy yields.

  • The risk reversal skew has shifted further towards greenback puts on Thursday, with USD/JPY 1-month 25 delta risk reversal easing to its lowest point since mid-March.
  • Spot USD/JPY trades at Y127.73, a touch lower on the day. A fall through May 19/Apr 27 lows of Y127.03/126.95 would signal potential for an extension towards the 50-EMA at Y125.77. Bulls need a rebound above May 12 high of Y130.05 before taking aim at May 9 high of Y131.35.
  • Japan's core CPI is expected to have picked up to +2.0% Y/Y in April from +0.8% prior, meeting the BoJ's target. However, it is unlikely to prompt the central bank to abandon its strategy of powerful monetary easing, as price pressures seem underpinned by statistical distortions and supply-side factors rather than wage dynamics.
  • Next week's data highlights include flash Jibun Bank PMIs (Tuesday) & Tokyo CPI (Friday).