The Japanese yen has lost ground against the dollar for a second straight day. In the North American session, USD/JPY is trading at 143.39, up 0.43% on the day. Earlier, USD/JPY rose as much as 0.96% but pared much of those gains.

US inflation lower than expected

US inflation surprised on the upside in February. Headline inflation eased to 0.2% m/m from 0.5% and below the market estimate of 0.3%. Annually, headline inflation dropped to 2.8% from 3% and below the market estimate of 2.9%.

It was a similar story for core CPI, which fell to 0.2% from 0.4%, below the market estimate of 0.3%. Annually, the core rate dropped to 3.1% from 3.3%, shy of the market estimate of 3.2%. This marked the lowest level since April 2021 and the decline is significant as core inflation has been sticky and well above the Federal Reserve’s target of 2%.

Japan’s GDP revised lower

Japan’s GDP expanded 2.2% y/y in the fourth quarter of 2024, lower than the initial estimate of 2.8%. The revision was expected to stay largely unchanged but was pushed lower due to a decrease in inventories and consumption.

The GDP downward revision follows other soft data which points to weakness in Japan’s economy. Household spending slumped 4.5% m/m in January. This was a sharp reversal from the 2.3% gain in December and missed the estimate of -1.9%. Annualized, household spending rose 0.8%, below the 2.7% in December and the market estimate of 3.6%. On Monday, the wage growth report indicated that real wages declined by 1.8% in January, after two months of growth.

How will the Bank of Japan react to the string of weak data? The annual wage negotiations are close to a deal and the BoJ has urged companies and workers to reach a deal that significantly raises wages. This would boost growth and consumption and help keep inflation sustainable at the BoJ’s 2% target.

The unions are asking for an average wage hike of 6%, up from 5.8% last year and the highest in more than 20 years. Last year’s wage agreement led to the BoJ raising rates for the first time since 2007 and this year’s wage deal could pave the way for another rate hike. The BoJ holds its next meeting on Mar. 19, five days after the wage settlement will be announced. The BoJ isn’t expected to make a move next week but investors are circling April or May as potential dates for a rate hike.

USD/JPY Technical

USD/JPY has pushed above resistance at 147.96 and is putting pressure on resistance at 148.56. The next resistance line is 148.86
147.96 and 147.66 are the next support levels

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US dollar climbs against yen on soft US CPI report