The Japanese yen is losing to the dollar despite hawkish comments by Naoki Tamura of the Bank of Japan. The banker indicated that rates in Japan should rise to 1% soon, from the current 0.25%. In his view, inflation in Japan is on track to reach 2% growth, in line with projections. The BOJ's current three-year timeframe for growth and inflation projections covers the fiscal 2024 - March 2027 periods. Tamura's comments may be interpreted by some as the 'voice of reason', resounding as the BoJ (very slowly) exits recent policy.
- According to Tamura, the markets are pricing in a very quiet pace of BoJ rate hikes, and if the bankers decide to do so, they will risk raising rates too quickly and will likely be forced to raise rates sharply later. Tamura is known for his hawkish stance on bank policy. Tamura assessed that the trend in wage growth in the economy is steady, while Japanese companies are passing on more than usual costs resulting from imports to consumers.
- According to Tamura, the country is facing labor shortages in the labor market, creating additional inflationary pressures. BOJ data released today showed that the rate of growth in corporate goods prices in Japan slowed for the first time in eight months. Japan's corporate goods prices rose 2.5% y/y in August, up from 3.0% y/y in July.
USDJPY (M30 interval, D1)
The USDJPY retreated nearly 600 pips overnight, following Naoki Tamura's statements from 142.9 to 142.3, but the move has now been erased in its entirety and the pair continues to rise nearly 0.3%. The upward momentum accelerated after yesterday's CPI data from the US, which strengthened the dollar. Today, volatility on USDJPY may accelerate around 1:30 PM BST, when U.S. benefit claims (the market expects a slight increase from 227,000 to 230,000) and PPI inflation will be published, where a strong drop from 2.2% to 1.8% y/y is expected. Any hawkish surprise could trigger another upward impulse on the pair toward 144. The potential for a short-term rebound seems to exist, although fundamental factors (Fed cuts, expected hikes in Japan) could take hold at the upper limits of the downward channel. The pair is traded well below EMA200 on D1 interval, signalling reversal to the downtrend.
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