The Japanese yen, paired with the US dollar, is firmly gripped in a sideways channel. The current USDJPY exchange rate stands at 148.07.
Considering how volatile the yen usually is, the current state of affairs is surprising.
The currency market is in a global state of consolidation. The US dollar is holding tight due to the upcoming Federal Reserve meeting. It begins on Tuesday and concludes on Wednesday with an interest rate decision. This is significant as it will then become clear whether the Fed will start decreasing the rate in March or only in May.
This decision will determine the market sentiment for the next few weeks.
In January, core inflation in Tokyo, typically seen as the leading indicator for the official Consumer Price Index (CPI), dropped to 1.6% y/y. A month earlier, the index stood at 2.1%. The market expected a decline, but less pronounced.
Additionally, the reduction in Japan's Corporate Services Price Index is worth noting. The indicator fell to 1.6% y/y from 2.3% previously.
All this signals the presence of structural issues with price stabilisation in Japan, which the Bank of Japan will need to address.