Yen Slips as Japan Inflation Cools, But Lags Euro Rally

Warren Takunda

BUY EURJPY

Close Time

CLOSED

170.300

Entry Price

171.500

169.500

187.223 -0.074 -0.04%

80.0

Pips

Loss

169.500

169.496

Exit Price

170.300

Entry Price

171.500

The yen is hovering around 157 per dollar, on track for a weekly decline of nearly 1%. This comes as data revealed a further slowdown in Japan's inflation rate, which eased to 2.2% in April compared to 2.6% in March. This dip aligns with analyst expectations and is largely attributed to milder food price inflation.

A Tale of Two Central Banks

Despite the cooling inflation, the yen is struggling to gain traction. The main culprit? A resurgent US dollar. Stronger-than-anticipated US economic data is fueling speculation that the Federal Reserve might delay interest rate cuts. Additionally, the latest FOMC minutes revealed concerns among policymakers regarding persistent inflation, with some even hinting at potential policy tightening if inflation spikes further.

This creates a clear contrast between the Bank of Japan (BOJ) and the Fed. Markets anticipate the BOJ to remain dovish on interest rates, making the yen carry trade (borrowing in yen and investing in higher-yielding currencies) relatively attractive.

Technical Analysis

While the yen weakens against the dollar, it's a different story for the euro. The EURJPY pair is experiencing a bullish resurgence, capitalizing on a recent consolidation phase. This uptrend is supported by a key level at 169.40, which has transformed into a critical support zone for the euro.

The Stochastic oscillator, however, is currently diverging from the price action, indicating a potential short-term pullback for the euro. This suggests that the current bullish momentum might be temporary.

For the EURJPY pair to maintain its bullish trajectory, it needs to hold above the 168.90 level, which is the first major support zone. A sustained break above this level could see the pair target higher resistance points near 170.70 and 171.50.

TRADE RECOMMENDATION

BUY EURJPY

ENTRY PRICE : 170.300

STOP LOSS : 169.500

TAKE PROFIT : 171.500

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Yen Slips as Japan Inflation Cools, But Lags Euro Rally

Risk Disclosure