USD/JPY Holds Support Levels Following Soft Japanese CPI/Retail Sales


Yen Strength was halted Friday following a weaker than expected inflation report and downbeat retail sales data. It appears that despite Japans huge stimulus program, deflationary influences remain in place.

Japan’s core CPI grew at a 2.0% year over year pace in February, below projections after the 2.2% clip in January. Total CPI slowed to a 2.2% pace in February from 2.4% in March. Tokyo core CPI expanded at a 2.2% rate in March, identical to the pace in February. Total Tokyo CPI held steady at 2.3% year over year in March.

Retail sales fell 1.8% year over year in February, slightly worse than expected after the 2.0% drop in January. Sales grew 0.7% month over month in February, also short of projections after the revised 1.9% drop in January which was originally -1.3%. But sales at large retailers grew 1.3% year over year in February, outpacing expectations after the flat reading in January.

Household spending contracted at a 2.9% year over year rate in February, a bit better than anticipated after the 5.1% drop in January. The unemployment rate fell to 3.5% in February from 3.6% in January. Overall, underlying price growth which is reflected by CPI excluding fresh food continues to slow from the 3.4% peak rate seen in May of last year that was due to the consumption tax hike, suggestive of subdued underlying price pressures in Japan despite the BoJ’s extraordinary stimulus.

The USD/JPY is holding steady near the 119 area, after testing 118 on Thursday. The yen has strengthened nearly 3 big figures since hitting a fresh trend high of 122 early in March. Resistance on the currency pair is seen near the 10-day moving average at 120. Momentum remains negative with the MACD (moving average convergence divergence) index printing in negative territory with a downward sloping trajectory.

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