USD/JPY 155 in focus around US inflation, BOJ meeting: The Week Ahead

USD/JPY 155 in focus around US inflation, BOJ meeting: The Week Ahead

155 has become the latest 'glass ceiling' for the rapid rise of USD/JPY. And with a key US inflation report, BOJ meeting and potential for risk-off sentiment next week, this key level could be tested and prompt a response from Japan's central authorities. 

• The week that was:
• The week ahead (calendar):
• The week ahead (key events and themes):

The week that was:

The week ahead (calendar):

The week ahead (key events and themes):

• US PCE inflation
• Australian quarterly CPI report
• BOJ interest rate decision

US PCE inflation

Inflation data remains a hot topic for traders given its potential impact on the Fed’s monetary policy. Yet now markets have slowly unwound bets of multiple Fed cuts to likely none at all this year, I am left wondering how much of an impact next week’s PCE inflation data might actually have on markets.

A volatile market reaction to any data release requires a surprise, one way of another. Yet with PCE inflation data itself being less volatile then headline CPI reads, markets preparing for no or very few cuts and the likelihood that PCE will not soften enough to change these views, it leaves and upside surprise if anything.

Trader’s watchlist: EURUSD, USD/JPY, WTI Crude Oil, Gold, S&P 500, Nasdaq 100, Dow Jones

BOJ interest rate decision

The Bank of Japan are unlikely to change policy on Wednesday, and even if they did it won’t be much and is unlikely to be followed up by much else any time soon. At least, if comments from BOJ member Noguchi are to be believed when he said “it’s short-term policy rate adjustment is likely to be slow”.

Markets are pricing in less than a 50% chance of a 10bp hike by July, according to Bloomberg. With that said, the BOJ are not ones to base their policies on market pricing and will ultimately say and do that they want, when they want. Therefor, one should never drop their guard against the BOJ, as the central bank has a history of surprising market – even if once in a very long while.

Trader’s watchlist: USD/JPY, AUD/JPY, GBP/JPY, EUR/JPY, Nikkei 225

Australian quarterly CPI report

There has been little in the way of economic data for Australia that has swayed opinions that the RBA is likely to hold rates at 4.35% for the time being. However, if any data point next week is to change that it could be the quarterly CPI report. Like many other central banks, the RBA deem inflation to be “too high”, and the quicker if softens the more likely the case builds for a rate cut – although it also needs to be coupled with weaker employment figures to expect any cut to be imminent.

Whilst each has their own domestic drivers of inflation, the headline CPI reports track each other relatively closely over the longer term. And given the New Zealand’s CPI report this week revealed annual CPI to be 4% or 0.6% q/q, it does raise the question as to whether Australia’s CPI rate will fall much from 4.1% y/y or 0.63% in next week report, if it softens further at all. 

Trader’s watchlist: AUD/USD, NZD/USD, AUD/NZD, NZD/JPY, AUD/JPY, ASX 200

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge