Yen Dips ahead of Key Inflation Data

The Japanese yen continues to flirt with the 140 level. In the European session, USD/JPY is trading at 140.25, up 0.51%.

Japan releases the October National CPI later today, which is expected to rise to 3.5%, following the September reading of 3.0%. Inflation has been on the rise and is above the BoJ’s target of 2%, although these are levels that other major central banks can only dream about. The Bank of Japan has no plans to change its ultra-loose policy, even though inflation is above the target and the yen remains weak. BoJ Governor Kuroda reiterated his well-worn script earlier today that the rise in inflation is transitory, adding that he expects CPI to drop below 2% in fiscal year 2023. The yen has been on a tear in November, with gains of close to 6%, but that is more a case of dollar weakness rather than any newfound yen strength. With the Fed planning another oversize rate hike in December, the US/Japan rate differential will continue to weigh on the yen.

Fed sends a hawkish message

The investor exhilaration which sent the stock markets rallying after the soft inflation report has taken a pause. Fed policy makers responded with a hawkish message, reminding the markets that the Fed was planning to raise rates higher than they had anticipated. The Fed speak may or may not have convinced investors to settle down, but a strong US retail sales report clearly did the trick. The headline and core releases both posted strong gains of 1.3%, dampening sentiment that the Fed would pivot and ease its tightening. The US economy remains resilient and appears able to absorb further rate hikes without triggering a deep recession. Interest rates are expected to peak at 5% or slightly higher, which means that the Fed is highly likely to continue tightening into next year.

USD/JPY Technical

  • USD/JPY has support at 140.30 and 139.66
  • There is resistance at 141.08 and 141.86

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