The rally in USDJPY is taking a breather and understandably so following its spike to levels not seen since 2002. Data overnight indicated once again the fragility of the Japanese economy with inflation continuing to remain anchored and a surprise decline in household spending putting an end to the recent move higher. The BOJ’s efforts to get inflation back to 2% are proving harder than was expected as the ever declining Yen is causing Japanese consumers, who for years have been used to falling prices, are grappling with higher import costs pushing up the price of high street goods. On top of this the consumers have had to deal with their pay packet decreasing as a result of recent tax hikes so they not only do they have less money, they are keeping more of it in their pocket. At least there was a bright spot from industrial production and unemployment and the Japanese economy had a strong first quarter, but it’s still a long way from where both Prime Minister Abe and the BOJ want it to be.
Today’s focus will be on US data in the form of Q1 GDP which is expected to decline and then there’s the Chicago PMI as well as Michigan Consumer Sentiment all which have the potential to impact the dollar. Just pulling back a little from earlier strength in the week investors are already gearing up for next Friday’s nonfarm payroll, the last ahead of June’s FOMC meeting where a select few still believe the Fed will raise rates.