The USD/JPY enjoyed upward momentum on Monday, as the Bank of Japan acknowledged that inflationary pressures are expected to remain tame due to the effects of lower energy prices.
The USD/JPY climbed to a daily high of 124.81. It would subsequently consolidate at 124.69, advancing 0.4%. The USD/JPY faces immediate resistance at 124.87. On the downside, immediate support for the USD/JPY is likely found at 123.90.
The Japanese yen came under selling pressure after the BOJ said producer and consumer inflation are expected to remain flat over the short-term.
Regarding the inflationary outlook, “producer prices are expected to be more or less flat for the time being, reflecting movements in international commodity prices, and the year-on-year rate of increase in consumer prices is likely to be about 0 percent for the time being, due to the effects of the decline in energy prices,” the BOJ said in its monthly economic survey.
Separately, the Japanese government’s eco watchers survey – a measure of regional economic trends – rose less than forecast in July, climbing to 51.6 from 51.0 the previous month. A median estimate of economists called for 53.1.
The US dollar enjoyed broad support on Monday, climbing 0.2% against a basket of currencies. On Friday the Labor Department said the US economy added 215,000 nonfarm payrolls in July, giving the Federal Reserve the justification it needs to begin raising interest rates as early as next month.
The dollar was little changed against the euro and British pound, but gained considerable ground on the Swiss franc. The USD/CHF climbed 0.4% to 0.9865. The pair faces immediate resistance at 0.9883. On the downside, initial support is likely found at 0.9789.
In commodities, oil prices came off nearly six-year lows on Monday despite an unexpected plunge in Chinese exports. China’s trade surplus narrowed to $43.02 billion in July from $46.54 billion in June, the General Administration of Customs reported on Saturday. Exports, which had increased 2.8% in June, plunged 8.3% last month on weaker demand and a firming Chinese yuan.
Brent crude, the international benchmark, was up 1.4% or 67 cents at $49.28 a barrel on the ICE Futures Exchange in London. US benchmark West Texas Intermediate (WTI) climbed 0.7% or 31 cents to $44.18 a barrel on the New York Mercantile Exchange.
As the world’s largest energy consumer, China has a significant impact on oil prices. On Wednesday Beijing is expected to report on retail sales, industrial production and urban investment.