Yen rebounds after promising Japan economic data

The USD/JPY price dropped sharply in the overnight session as the market reacted to the relatively strong Japanese economic data. The pair dropped by 0.55% from the five-month high of 106.42 to a low of 105.85.

Improving Japanese inflation

The Japanese Bureau of Statistics released relatively strong economic numbers, signaling that the country’s economy was doing better. The data revealed that the headline consumer price index (CPI) in Tokyo improved from -0.5% to -0.3% in February. 

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Excluding the volatile food and energy products, the prices improved from -0.4% to -0.3%. While these numbers are significantly below the Bank of Japan (BOJ) target of 2%, they are heading in the right direction.

Further data revealed that the country’s industrial production rose by 4.2% in January after dropping by 1.0% in the previous month. Analysts polled by Reuters were expecting the data to come in at 4.0%. The agency expects the production to rise by 2.1% in February and then drop by 6.1% in March.

Meanwhile, the USD/JPY also reacted to the relatively weak but better than expected retail sales numbers. In January, retail sales fell by 2.4% after falling by 0.2% in the previous month. This happened as the country implemented a state of emergency to slow the spread of the pandemic.

The USD/JPY dropped even as the US dollar bounced back. The dollar index has bounced back by 0.20% after days of being in the red. It has risen by 0.25% against the British pound and 0.15% against the euro. Also, it has risen against the Canadian dollar, Swedish krona, and Swiss franc. 

In the past few days, the currency has weakened because of the performance of the bond market. Yields on the 5, 10, and 30-year treasuries have been rising as forex traders start pricing-in a strong economic recovery. 

USD/JPY technical outlook

The USDJPY price rose to a five-month high of 106.42 this week. It then pared-back some of these gains and is now trading at 106.07. On the four-hour chart, the price is slightly above the middle line of the ascending regression channel. It is also between the middle and upper line of the Bollinger Bands. Therefore, even with the decline, the pair remains in an overall bullish trend until it moves below the two middle lines.