Japan Core Inflation Turns Negative, Yen Strengthens

Falling energy costs and a slowdown in economic activity are depressing prices, stirring worries about a come-back of deflation...


As expected, the Bank of Japan today kept its key interest rate unchanged at Negative -0.100%.

At the same time, the central bank announced the launch of a new lending program worth 30 trillion yen to support small businesses hit hard by the coronavirus pandemic.

This new program, which funnel money to companies via commercial banks and other financial institutions, will bring the BOJ's coronavirus response measures to 75 trillion yen.

In fact, before the central bank's announcement, Japan's official data showed that Core Consumer Prices contracted 0.2% on year in April (-0.1% expected, +0.4% in March), the first Negative reading since 2016. Falling energy costs and a coronavirus-induced slowdown in economic activity are depressing prices, stirring worries about a come-back of deflation.

Source: Trading Central

Meanwhile, the Japanese yen has regained some strength against the U.S. dollar.

On an Intraday 30-minute Chart, USD/JPY rebounded to an Overhead Resistance at 107.85 yesterday before retreating.  

Source: GAIN Capital, TradingView

Currently USD/JPY has returned to levels below the 20-period moving average, which has just crossed below the 50-period one.

And the relative strength index has not yet recovered the neutrality level of 50, suggesting a lack of upward momentum for the pair.

The technical configuration points to continued downside pressure.

The level of 107.85 (the high of yesterday) is acting as a key resistance.

Unless this level is surpassed, USD/JPY is expected to seek Downside Support at 107.35 and 107.20.

Build your confidence risk free

More from Forex

Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.