A ‘lower for longer’ tone was set over the weekend with the Jackson Hole Symposium. Bank of Japan (BoJ) Governor Haruhiko Kuroda signalled that the central bank may need further monetary policy easing to chase its inflation target of 2%.
The possibility of fresh stimulus prompted the yen to weaken in today’s opening session, hitting its lowest against the greenback since January.
The currency is likely to see more volatility in the later part of the week, when the bulk of the data will be released.
However, we might get limited yen upside from any positive readings after the rather dovish stance by Kuroda. On the flipside, any poor readings could prompt traders to buy further into the ‘lower for longer’ story.
On the inflation front, we’ll get a round of consumer price index numbers for July on Friday morning. The market consensus forecast is for core inflation (excluding food and energy) to be flat from the prior month at 2.3%.
A good print will provide some support for the currency, though on a longer term a few more months of data will give a better sense of the trend, after April’s consumption tax hike.
Another one to watch is the jobs data, after Kuroda raised the suggestion at Jackson Hole Symposium that Japan might consider relaxing its stance on migrant workers to boost productivity and fill job gaps.
The unemployment rate for July is expected to be at 3.7%, while the jobs-to-applicants ratio also stagnant at 1.10. A higher ratio and to a certain extent a higher jobless rate, will suggest an improving labour market. This could boost confidence in an economic recovery and lift sentiment over stocks on the Nikkei or Japan 225.
Other data’s to watch will be retail trade, industrial production estimates, overall household spending, and manufacturing PMI.
Kicking off the week, tomorrow morning will be the release of the producer price index for services, which is not usually a big market mover but will give an indication where other inflation numbers are heading.
The Cabinet Office Monthly Economic report is also expected tomorrow, which will give a qualitative outlook.
With what looks increasingly to a divergence of policies by central banks, traders are likely to be more bullish on the greenback and bearish on the yen. USD/JPY is currently on an uptrend after breaking through 103.88 resistance area last week. More conservative traders could consider waiting for a pullback towards that level for an entry.