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Japan’s headline inflation likely to have come in at 0.6 pct in May, says Wells Fargo

Japan is set to release its consumer price inflation data for the month of May next week. According to a Wells Fargo research report, the country’s inflation is likely to have come in at 0.6 percent, a rise from prior month’s 0.4 percent. Consensus expectations are for the headline rate to have come in at 0.5 percent year-on-year.

The Bank of Japan has stuck to a policy of unabashed policy easing, even as other major foreign central banks have started to at least talk about eventual policy normalization. It is easy to understand why the Japanese policymakers are discreet on the matter of normalization, considering that the headline inflation continues to be well below the target rate of 2 percent, noted Wells Fargo.

With the dovish bias at the Bank of Japan, the yen is likely to see some modest near-term weakness. Discussion of an eventual exit policy might be yen supportive. Until that time, a broadening U.S. – Japan interest rate spread might be a drag on the yen. The eventual pass-through impact of that yen-weakness might aid the central bank in achieving its target, added Wells Fargo.

At 22:00 GMT the FxWirePro's Hourly Strength Index of Japanese Yen was neutral at -42.4633, while the FxWirePro's Hourly Strength Index of US Dollar was slightly bearish at -62.388. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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