On Friday, the Japanese yen hit the brakes on its impressive rally this week and USD/JPY traded at about 154.34, up 0.30% for the day in the European session.
After rising by as much as 1.3%, the yen later gave up all those gains after a strong GDP report from the US. The yen is however 1.9% higher this week.
In July, Tokyo Core CPI increased to 2.2% y/y, slightly higher than June’s gain of 2.1% and the same as the market forecast. This was the third consecutive acceleration and its highest level since March.
The gain was driven by higher electricity prices. Earlier in the week, business service inflation in July rose to 3%, up from June’s 2.7% and higher than the 2.6% market forecast. That was the highest in 33 years.
The Bank of Japan must face the difficult task and has to decide whether to deliver a rate hike or maintain policy at the meeting next week. It’s a toss-up what route the central bank will take and Bank officials will likely maintain radio silence.
There is a strong case for either side. Wage growth and inflation have been pushing higher which should support a rate hike. On the other hand, consumption is still weak.
