Japanese yen remains unfazed by inflationary progress
The Japanese yen has temporarily picked up some strength against the US dollar after a wave of economic data showed that Japan is making progress in getting its economy out of deflation.
However, the currency quickly returned to square one.
Although there is still a way to go to achieve the Bank of Japan's (BOJ) inflation target of 2% within two years, consumer price figures released on Friday showed that the economy appears to be on the right path. For July, the national consumer price index (CPI) reached the highest level since July 2008 with a 0.7% increase, matching expectations. Core CPI was also up 0.7%, up from 0.4% in June and beating expectations for 0.6%.
Another release overnight showed a sharp seasonally-adjusted 3.2% rebound in industrial production, reversing the previous month's contraction although it missed a 3.6% forecast.
On the other hand, the unemployment rate in Japan surprised to the downside, falling to 3.8% in July from 3.9% the prior month.
The data is seen as supporting a planned sales tax increase that is currently being discussed by a government panel. The government has proposed a two-step increase to double the sales tax from the current 5% to 10% by October 2015. The debate is whether the economy is strong enough to withstand the tax increase.
After the market digested the data, the USD/JPY remained mostly unchanged, possibly because the Bank of Japan had already been praising the economic recovery and suggesting it would hold off on more quantitative easing for now.
Some analysts are concerned that the central bank will lose credibility if its policy proves to be ineffective.
José María Rodríguez, Technical Analyst for fxmania.com, explained that the USD/JPY is holding on to a short-term bearish trendline.
"Following the strong rebounds seen in this pair over the last two sessions we now find the price once again wavering around the closest bearish trend line achieved off the decreasing highs from the start of July that are currently moving through 98.40," he said.
"In any event, so long at the price does not jump above 99.15 there will continue to be no signs of the ongoing upwards bias and any movement to the upside will be nothing more than a simple, tentative rebound."
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