Japan’s Inflation Rate Declines, USD/JPY Faces Turbulence Ahead
WHAT YOU SHOULD KNOW
- Japan’s annual inflation rate fell to 3.2% in May 2023, surprising the market and missing forecasts of 4.1%.
- Core inflation in Japan dipped to 3.2% in May from its three-month peak in April, remaining above the Bank of Japan’s 2% target for the 14th consecutive month.
- The USD/JPY pair is currently in Stage 3 of its cycle on the weekly chart, indicating potential downward movement, with turbulence expected as the FOMC announcement in the U.S. approaches.
Japan’s annual inflation rate took an unexpected dip to 3.2% in May 2023, falling from the previous month’s peak of 3.5% and missing market forecasts of 4.1%. The slowdown was observed across various sectors, with furniture & household utensils, as well as fuel, light, and water charges experiencing declines for the fourth consecutive month. Notably, electricity registered a significant drop of -17.1%. While some sectors like housing and education remained steady, others such as transport, clothes, medical care, and miscellaneous items saw accelerated price growth. Food prices also surged to their highest level since September 1976, rising from 8.4% in April to 8.6%. Core inflation also decreased to 3.2% in May from its three-month peak of 3.4% in April, remaining above the Bank of Japan’s 2% target for the 14th consecutive month. On a monthly basis, consumer prices leveled off in May after a 0.6% surge in April.
From a technical analysis perspective, the USD/JPY pair is currently in Stage 3 of its cycle on the weekly chart, indicating a potential downward movement with lower highs already evident. A 5-point harmonic pattern to the downside further suggests the likelihood of this trend continuing. However, the upcoming FOMC announcement in the U.S. next week could bring turbulence to the pair’s trajectory, challenging expectations of smooth and steady movements.
Overall, the inflation data reveals a fresh decline in Japan’s economy, catching many by surprise. Meanwhile, forex traders should keep a close eye on the USD/JPY pair as technical indicators point towards a potential descent and upcoming market uncertainties.
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