Morning Note: Japan's Core Inflation Spikes; UK Retail Surges; Canada Sales Slow

Japan’s Core Inflation Hits 2-Year High in April

Japan’s core inflation rose at its fastest annual pace in over two years in April, increasing the likelihood of another interest rate hike by the end of the year. According to data released today, the core consumer price index (CPI), which excludes fresh food but includes oil prices, climbed 3.5% year-on-year, up from a 3.2% gain in March. This marks the sharpest annual increase since the 4.2% rise in January 2023 and keeps the inflation rate above the Bank of Japan’s 2% target for more than three consecutive years.

The data highlights the Bank of Japan’s ongoing challenge in navigating inflationary pressures fueled by persistent food prices, while also contending with external headwinds such as tariffs imposed by former U.S. President Donald Trump. Meanwhile, service-sector inflation remained relatively subdued at 1.3% in April, down slightly from 1.4% in March, indicating that businesses are still hesitant to pass on rising labour costs to consumers fully.

(USD/JPY Daily Chart, Source: Trading View)
From a technical analysis perspective, the USD/JPY currency pair has been in a bearish trend since mid-January 2025, as indicated by a series of lower highs and lower lows. Recently, the pair failed to form a higher high and was rejected from the resistance zone between 147.70 and 148.20. It has now broken below the swap zone of 143.50 – 144.00, which could potentially drive the pair lower.

UK Retail Sales Rebound in April

UK retail sales month-on-month growth rose from 0.4% in March to 1.2% in April. This significant acceleration is likely due to a rebound in consumer activity following a period of subdued spending, potentially driven by improving weather conditions, seasonal demand around Easter, and easing inflationary pressures, which have gradually restored purchasing power. Additionally, retail discounts and promotional campaigns may have encouraged higher foot traffic and spending, particularly in non-essential goods, contributing to the stronger expected figure.

(GBP/USD Daily Chart, Source: Trading View)
From a technical analysis perspective, the GBP/USD currency pair has been in a bullish trend since mid-January 2025, as indicated by a series of higher highs and higher lows. Recently, it broke solidly above the resistance zone of 1.3380 – 1.3420. Therefore, it may potentially continue moving upward with sustained bullish momentum.

Canada Retail Sales Expected to Cool Slightly

Canada's retail sales grew by 4.7% year-over-year in April, but expectations for March show a softer increase of 3.8%. The anticipated slowdown likely reflects more cautious consumer spending amid high interest rates and persistent cost-of-living pressures. Additionally, the strong April reading may have benefited from seasonal factors or one-off boosts, making a slight pullback in March seem more probable as the underlying trend stabilises. This data is set to be released today at 12:30 GMT.

(USD/CAD Daily Chart, Source: Trading View)
From a technical analysis perspective, the USD/CAD currency pair has been in a bearish trend since the beginning of February 2025, as indicated by a series of lower highs and lower lows. Recently, it failed to close above the swap zone of 1.3920 – 1.3950, indicating that bearish forces have regained control and may potentially continue to push the pair lower.

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