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Japan stocks edge up on weak yen, CPI in line

USD/JPY gained overnight on the back of positive US jobs data. Last night, US unemployment claims fell to an eight-year low, declining by 19,000 to 284,000.

U.S. one-hundred dollar banknotes, left, and ten-thousand yen banknotes
Source: Bloomberg

The USD/JPY pair gained around 0.2% on the news released last night, extending gains from earlier in the day as investor confidence picked up.

There was a general sell off from safe haven assets, as headlines over the Ukraine-Russia crisis dropped out of the spotlight and were offset by a stream of strong US corporate earnings. We can also see a return of risk appetite reflected by gold prices drifting lower over the past week.

Inflation in line

Japan’s inflation numbers came in as expected for June, lifted by April’s consumption tax hike.

The nationwide core consumer price index (CPI) rose 3.3%, in line with market consensus forecasts, but just a tick below the 3.4% reading from the prior month.

USD/JPY did not move much on the news and looks to be settling around the 101.80 handle after hitting a one-week high of 101.86 overnight.

In the near term, the general bias is still on the upside as the Bank of Japan is likely to keep its accommodative monetary policy stance to pursue its inflation target of 2%. While today’s headline CPI numbers were in line with expectations, we’ll need to watch data over the next few months to filter out the impact from the tax hike.

USD/JPY could push further up on the release of data on durable goods orders for June. The market forecast is for a rise of 0.5%, an improvement from the dip of 0.9% in May.

There will be a heavy round of US data next week that could lift the greenback. This includes the consumer confidence index, mortgage applications, ADP employment numbers, Q2 GDP estimates, more details on the pace of the Federal Reserve’s bond purchase programme, and FOMC rate decision.

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