A Higher Inflation Rate In Japan Is Keeping The Dollar Firm And The Yen Steady

(CTN News) – Despite inflation data suggesting U.S. labour market resilience that may lead the Federal Reserve to continue raising interest rates, the yen strengthened on Friday as Japan’s core consumer inflation reaccelerated.

Investors will be parsing through data to better gauge the monetary policy paths that the European, Japanese, and American central banks are likely to chart over the next week.

Japan’s yen strengthened 0.08% to 139.97 per dollar after the nationwide core consumer price index rose 3.3% from a year earlier in June, matching a median market prediction, but remaining above the Bank of Japan’s target of 2%.

The data increases the likelihood that the Bank of Japan will revise up its inflation forecast for this year in its next week’s projections.

The market expectations for a BOJ policy tightening have fluctuated over the past year, according to Currency Strategist Carol Kong at Commonwealth Bank of Australia (CBA).

A narrowing window of opportunity exists for the BOJ to tighten its monetary policy, Kong said, adding that the CBA assumes the BOJ will maintain its monetary policy unchanged for the remainder of the year.

The BOJ Governor Kazuo Ueda stated earlier this week that Japan is still far from reaching its 2% inflation target, dispelling speculation that next week’s yield curve will be altered.

This week, the yen has lost approximately 1% against the dollar, and is on track to snap a two-week winning streak.

Data released overnight revealed that the number of Americans filing new unemployment benefits unexpectedly fell last week, reaching the lowest level in two months despite ongoing tightness in the labor market.

The jobless claim figures have now returned to healthy levels after a slight increase in early June, according to Ryan Brandham, head of global capital markets, North America at Validus Risk Management.

Despite previous Fed hikes, the U.S. inflation and labor market continues to show resilience. This result will not deter the FOMC from hiking next week’s hike.”

A 25 basis point rate hike is expected by the Fed next week, and the chances of the U.S. central bank continuing to raise rates increased following the release of the data.

As measured by a basket of currencies, the dollar rose by 0.03% at 100.78, following a 0.5% gain the previous week. In the coming week, the index is expected to gain 1%.

It rose by 0.04% to $1.1132, following an inflation drop of 0.6% on Thursday. All economists surveyed by Reuters expect the European Central Bank to raise interest rates by 25 basis points on July 27, with a slight majority also expecting another hike in September.

There was a 0.28% decline in the Australian dollar to $0.676, while a 0.34% decline in the New Zealand dollar to $0.621.

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