Yen falls as deflation halts

The Japanese yen is lower against the US dollar, as Japan is no longer experiencing deflation.

USD/JPY is trading at Y98.92, up 0.6% on the day, as Japan is showing signs that its monetary policy is working. Overnight, the country revealed that its cost of living stopped declining for the first time in seven months, and when deflation halts it is a sign that consumer demand is picking up.

The Bank of Japan (BoJ) is committed to a massive stimulus package until the country is back on its feet. By increasing the amount of money in the financial system, as a consequence it is devaluing the yen. The BoJ has set itself an inflation target of 2% over the next two years.  Now that the price of goods has stopped declining, it may have to increase its monetary easing scheme to achieve this inflation target. This prospect has prompted traders to buy the US dollar versus the Japanese yen.

At 2.55pm the US will reveal the latest University of Michigan consumer sentiment figures, and economists are expecting a reading of 83.0. If the figure is higher than expected, it may push the US dollar higher versus the yen.

Spot FX USD/JPY chart

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