JAPANESE YEN EASES AMID UNCERTAINTY OVER BOJ EXTENDING POLICY-TIGHTENING SPELL

• The Japanese Yen drops further as investors remain uncertain about BoJ extending the policy normalization process.
• Japan’s economy is estimated to have contracted by 0.4% in the January-March period, exhibiting a weak start to the year.
• The US Dollar will dance to the tunes of the US consumer and producer inflation data.

The Japanese Yen (JPY) falls further to 156.00 against the US Dollar (USD) in Monday’s European session. The USD/JPY pair moves upwards as investors worry that rising inflation in the Japanese economy is mainly the outcome of a weak Yen, which should be driven by a wage growth spiral for price pressures to sustain steadily above the desired rate of 2%.

The communication from Bank of Japan’s (BoJ) Summary of Opinions (SOP) for the April meeting, released last week, indicated that inflationary pressures in Japan are majorly induced by weak Yen. Policymakers discussed possible scenarios for further rate hikes. One member said the extent of consumption recovery toward the latter half of this year will be key in considering the timing for the next policy change.

This week, the outlook of the Japanese Yen will be guided by preliminary Japan’s Q1 Gross Domestic Product (GDP) data, which will be published on Thursday. The consensus suggests that the Japanese economy contracted by 0.4% in the January-March period after expanding by 0.1% in the last quarter of 2023. On an annualized basis, the Japanese economy is estimated to have contracted significantly by 1.5%.