JPY: Strength mainly vs. the USD - Commerzbank

The Japanese yen continued to strengthen against the US dollar over the holiday weekend, with the USD/JPY approaching 140 this morning. Once again, it is tempting to think that this is mainly due to the Japanese yen and that either Friday's inflation figures or today's comments from the Bank of Japan (BoJ) might have something to do with it, Commerzbank's FX analyst Volkmar Baur notes.

BoJ holds course amid food-driven inflation

"Neither Friday's inflation figures nor the BoJ's comments are really new. Inflation remains above 3%. And if you exclude fresh food and energy - the key measure used by the BoJ - it is still 2.8%. However, this is still mainly due to inflation in other food, which rose again to 6.2% in March. Food, in particular, accounts for a very high share of the CPI basket, around 26%, and can therefore have a strong impact on the inflation rate. However, the extent to which monetary policy can influence rice prices (up 92% year-on-year in March) remains questionable."

"And it should come as no surprise that the BoJ is maintaining its intention to raise interest rates if the economy performs as expected. The crux of the matter, however, is whether the economy will perform as expected in the face of US tariffs. And again, the BoJ says that risks have increased and that the data needs to be monitored."

"Finally, it should be noted that although the JPY gained 1.6% against the US Dollar over the long weekend, the US Dollar also lost around 1.3% on a trade-weighted basis. So the move was mainly driven by the weakness of the USD. And since we have to assume that the US dollar will remain a politically driven currency for the time being, the following should be kept in mind regarding the Japanese yen: Although the JPY has gained around 13% against the US Dollar since 8 January, it has only gained just under 1% against the EUR over the same period."