USD/JPY edged lower but remained sideways around 128.40s ahead of Japan’s CPI

• USD/JPY hovers around Wednesday’s close of 128.85, aiming to close below to extend its downtrend.
• Unemployment claims in the US came lower than expected, as traders expect further tightening.
• Japanese inflation data is expected to edge higher; what would the BoJ do?

The USD/JPY reverses its course and edges lower late in the North American session, down by 0.33% on Thursday. Risk aversion weighed on the US Dollar (USD), which extended its losses but was capped by the rise in US Treasury bond yields. At the time of writing, the USD/JPY is trading at 128.33 after hitting a daily high of 128.88.

USD/JPY in choppy trading before Japanese CPI release

Wall Street continues to show a dampened mood. Thursday’s economic data in the United States (US) pointed to a tight labor market, as Initial Jobless Claims for the last week edged lower, by 190K less than the 214K consensus. Further data reported that the US housing market continues to deteriorate. Housing Starts and Building Permits missed estimates, while the Philadelphia Fed Manufacturing Index, although in contractionary territory at -8.9, improved compared to November’s -13.7 reading.

As traders brace for a critical Japanese inflation report, the USD/JPY has been hovering around 128.40 for the last three hours.

Last month’s inflation in Japan rose by 3.8% YoY in November, exceeding October’s 3.7%. Excluding fresh foods but including fuel costs rose by 3.7% YoY vs. 3.6% on its previous reading. Excluding food and energy, the so-called core Consumer Price Index (CPI)  rose by 2.8%.

If the Japanese CPI increased above last month’s figures, that could result in the  USD/JPY prolonging its downtrend, and it might test the YTD low of 127.21, followed by a challenge to the May 24 swing low at 126.36.

Elsewhere. the US Dollar Index, a measure of the buck against a basket of peers, extended its losses for two straight days, sliding 0.34% to 102.034.

Also read: USD/JPY Price Analysis: The yen strengthens, as bears stepped in around 128.60s

What to watch?

The Japanese economic calendar will feature inflation figures. On the US front, the US calendar will feature Existing Home Sales alongside Fed speaking.

USD/JPY Key Technical Levels