USD/JPY approaches 128.00 on robust Japan’s National Inflation at 2.5%

• USD/JPY is aiming higher as Japan’s CPI rose to 2.5% while the core CPI jumps to 0.8%.
• Investors should brace for higher volatility amid a juggernaut jump in Japanese inflation.
• The BOJ may cut the extent of stimulus packages to a certain level.

The USD/JPY pair is advancing sharply higher after a significantly higher-than-expected Japan inflation underpinned the greenback. The asset is firmly marching towards 128.00 as Japan’s annual inflation figure could compel the bank of Japan (BOJ) to sound neutral rather than advocating an ultra-loose monetary policy.

The Statistics Bureau of Japan has reported annual Japan’s National Consumer Price Index (CPI) figure at 2.5%, explosively higher than the market consensus of 1.5% and the prior print of 1.2%. Meanwhile, the core CPI that doesn’t include food and energy prices has turned positive to 0.8% than the forecast of -0.9% and the former print of -0.7%.

The BOJ has been keeping its monetary policy in a prudent manner so as to keep injecting stimulus into the economy to spurt the aggregate demand. The Japanese economy has yet not reached its pre-pandemic levels and above that mounting inflationary pressures may add oil to the fire. A sharp rise in the price pressures displays that the households in Japan must be facing a serious dent in their real income. This doesn’t mean that the BOJ will turn their rate cycle in the ascending order however, stimulus packages could get reduced to a certain level.

Meanwhile, the US dollar index (DXY) has opened a little positive than its previous closing prices. The asset is expected to remain in the grip of bears as weekly Initial Jobless Claims rose to 213K against the preliminary estimate of 200k.