USD/JPY forecast after the weak Japan PPI data

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his… read more.
on Sep 13, 2021
  • The USD/JPY is in a tight range after the weak Japan PPI data.
  • The PPI declined from 1.1% to 0.0% on a MoM basis in August.
  • Japan faces a fragile recovery as the number of Covid cases rises.

The USD/JPY pair held steady in early trading after the relatively steady Japan producer price index (PPI) data. The pair was trading at 109.92, where it has been in the past few days.

Japan inflation data

The Japanese economy has remained steady in the past few months. Indeed, data published last week revealed that the country’s economy bounced back at a faster rate than expected as business investments rose. It rose by 1.9% in the second quarter, higher than the median estimate of 1.6%. 

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Still, the country’s economy remains fragile as it deals with a fresh surge of Covid-19 cases. Indeed, the country is reporting more than 20,000 new cases per day. This risks holding the economy at a time when other peer countries are recording strong growth.

The Bank of Japan (BOJ) also faces a tough situation with inflation. Data published on Monday revealed that the country’s producer price index declined from 1.1% in July to 0.0% in August. This decline was steeper than the median estimate of 0.2%. As a result, the PPI declined from 5.6% to 5.5% on a year-on-year basis.

Recent data showed that Japan’s consumer price index (CPI) declined 0.2% in Japan because of the relatively lower mobile fees. Therefore, with inflation being relatively lower, there are concerns that the Bank of Japan will maintain a dovish tone even as other central banks start their tightening phase. Just last week, the European Central Bank said that it will start slowing down the pace of asset purchases. 

Looking ahead, the next key catalyst for the USD/JPY price will be the American consumer price index (CPI) data scheduled for Tuesday. Analysts expect the data to show that the CPI remained at elevated levels in August.

USD/JPY technical analysis

USD/JPY

The daily chart shows that the USD/JPY pair has been in a tight range recently. The pair is trading at 109.45, which is slightly below the year-to-date high of 111.63. It has also formed an ascending triangle pattern and is slightly above the 23.6% retracement level. 

Therefore, the pair will likely remain in this range ahead of the American inflation and retail sales numbers scheduled for later this week. On the flip side, a drop below 109.5 will invalidate this view.

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