USD/JPY: Little Reaction to Weak US CPI

 | Jul 22, 2014 10:15AM ET

USD/JPY is stable on Tuesday, as the pair trades in the mid-101 range early in the North American session. On the release front, US CPI posted a weak gain of 0.1% last month. Today's other key release is Existing Home Sales, which will be released later in the day. In Japan, All Industries Activity bounced back in June, posting a respectable of 0.6%.

US inflation numbers continue to struggle. Core CPI posted a paltry gain of 0.1%, shy of the estimate of 0.1%. The key index has looked in anemic in 2014, with its highest gain this year at just 0.3%. CPI gained 0.3% last month, matching the forecast. The markets are expecting better news on the housing front, as Existing Home Sales is expected to show strong gains in June.

On Friday, US Consumer Sentiment remained steady at 81.3 points, but this was well below the estimate of 83.5 points. A day earlier, Unemployment Claims dropped slightly to 302 thousand, beating the estimate of 310 thousand. This figure marks a seven-week low, as the economy continues to churn out impressive employment data. With Janet Yellen telling Congress that a rate hike could be pushed forward if inflation and employment data exceeds expectations, improving employment data will put more pressure on the Fed to raise rates.

At a policy meeting last week, the Bank of Japan opted to hold course with its current monetary easing. Under current monetary policy, the money base has been increasing at an annual pace of 60-70 trillion yen. This has led to a severe weakening of the yen, so traders can expect the currency to remain above the 100 level, absent unexpectedly strong data out of Japan. On a positive note, deflation has been eliminated and the economy has displayed stronger levels of growth and inflation.