Japan rate decision Friday: A deeper look

12 Haz

Japan's wholesale inflation surged in May at the fastest annual rate in nine months, data revealed yesterday, indicating that a weak yen may be exerting upward pressure on prices by increasing the cost of raw material imports. Producer prices in Japan rose 2.4% year-on-year in May 2024, up from 1.1% in April, surpassing market expectations of a 2% rise.

This data is likely to be a key factor for the Bank of Japan (BOJ) board as it convenes for a two-day policy meeting ending on Friday. The central bank is widely anticipated to maintain its short-term interest rate target within the 0% to 0.1% range.

However, the data adds complexity to the BOJ's decision-making on the timing of interest rate hikes. BOJ Governor Kazuo Ueda has stated that the central bank will consider raising rates further if it becomes more confident that underlying inflation will remain around the 2% target.

Looking at the 4-hour chart today, the USD/JPY has rebounded following the FOMC decision, erasing much of the post-CPI drop, and passing through the 20-, 50-, 100-, and 200-hour Exponential Moving Averages.