The Japanese yen is struggling for direction on Tuesday as rising inflation and a bearish central bank weighed on the safe-haven asset. The yen has been one of the worst-performing Asian currencies, although it has attempted to rebound over the last month. From increasing COVID-19 cases to muted economic growth, it might be a challenging second half for the yen.
According to the Ministry of Internal Affairs & Communications, the nation’s consumer prices rose at an annualized rate of 0.2% in June, up from a 0.1% drop in May. This represented the first year-over-year expansion since August of last year. Most of the upward pressure in prices was concentrated in housing, furniture, recreation, and education. This was offset by declines in transportation, communication, and medical care.
Last month, core consumer prices, which exclude the volatile food and energy sectors, edged up for the second consecutive month to 0.2%. This was the the fastest annualized growth in more than a year, highlighting how global commodity inflation is impacting the world’s third-largest economy.
On a monthly basis, the consumer price index (CPI) advanced 0.3%.
Are policymakers concerned about the national economy? Tokyo maintained its overall assessment for the second straight month, with Prime Minister Yoshihide Suga and his Cabinet noting that coronavirus infection trends could negatively affect both the domestic and international economies. Tokyo does, however, anticipate that business conditions will improve.
In the second quarter, Japan’s economy stagnated, and the government is scheduled to release a preliminary estimate for the April-to-June gross domestic product (GDP) next month.
Meanwhile, the Bank of Japan (BoJ) trimmed the fiscal year’s growth forecast, asserting that the latest public health restrictions and emergency curbs to fight the coronavirus pandemic will affect consumption and enable the view that Japan will lag behind other advanced economies.
Moreover, the BoJ released a list of actions it will take to address climate change, including the acquisition of buying green bonds.
“Japan’s economy is likely to gradually recover as vaccinations progress and the impact of the pandemic subsides,” said Governor Haruhiko Kuroda. “Aside from what governments and parliaments do, we debated what central banks can do on this front. The biggest issue was how much we should do as a central bank, and what we can do.”
The Japanese bond market was flat, with the benchmark 10-year yield down 0.012% to 0.009%. The three-month bill was unchanged at -0.089%, while the 30-year bond slid 0.014% to 0.643%.
The USD/JPY currency pair rose 0.15% to 109.61, from an opening of 109.45, at 14:07 GMT on Tuesday. The EUR/JPY fell 0.14% to 128.97, from an opening of 129.26.