USD/JPY dips to 142.00 as annual US PPI weighs on US dollar

VaselineSeptember 12, 2024

0 2 minutes read

USD/JPY dips to 142.00 as annual US PPI weighs on US dollar

USD/JPY slips to near 142.00 as the US dollar corrects after the release of the US PPI report.
The US headline and core PPI for August came in weaker than expected.
BoJ Tamura sees interest rates rising to at least 1%.

USD/JPY drops sharply to near 142.00 in Thursday’s North American session. The asset fell as the US dollar (USD) faced selling pressure following the release of weaker-than-expected annual United States (US) Producer Price Index (PPI) data for August.

The US Dollar Index (DXY), which tracks the greenback against six major currencies, is correcting to near 101.60.

The PPI report showed annual manufacturing inflation rose 1.7 percent, slower than estimates of 1.8 percent and the previous release of 2.1 percent, revised down from 2.2 percent. The core PPI – which excludes volatile food and energy prices – rose a steady 2.4%, slower than expectations of 2.5%. The impact of US PPI data appears to be insignificant on market speculation for the Federal Reserve’s (Fed) rate cut path for next week’s policy meeting.

According to the CME FedWatch tool, the probability that the Fed will cut interest rates by 50 basis points (bps) to 4.75%-5.00% in September remains at 13%, as it was before the release of the US PPI data.

Next, investors will focus on preliminary Michigan consumer sentiment index data for September due out on Friday. Sentiment data is estimated to have remained almost flat at 68.0 from the previous release of 67.9.

On the Tokyo front, the Japanese yen (JPY) is strengthening as Bank of Japan (BoJ) policymaker Naoki Tamura offers an unwavering guidance on interest rates. Tamura sees interest rates rising to at least 1% by the start of the second half of 2025. Tamura refrained from offering a predetermined path for interest rate hikes.

Frequently Asked Questions about the Japanese Yen

The Japanese Yen (JPY) is one of the most traded currencies in the world. Its value is largely determined by the performance of the Japanese economy, but more specifically by Bank of Japan policy, the difference between Japanese and US bond yields, or risk sentiment among traders, among other factors.

One of the Bank of Japan’s mandates is currency control, so its moves are key for the yen. The BoJ has intervened directly in currency markets on occasion, generally to depress the yen, although it refrains from doing so because of the political concerns of its main trading partners. The BoJ’s current ultra-loose monetary policy, based on massive stimulus to the economy, has caused the yen to depreciate against its major peers. This process has been exacerbated more recently by a widening policy divergence between the Bank of Japan and other major central banks, which have opted to raise interest rates sharply to fight decades-high levels of inflation.

The BoJ’s stance of sticking to ultra-loose monetary policy has led to increased policy divergence with other central banks, particularly the US Federal Reserve. This supports a widening of the spread between US and Japanese 10-year bonds, which favors the US dollar against the Japanese yen.

The Japanese yen is often seen as a safe investment. This means that during periods of market stress, investors are more likely to put their money into the Japanese currency due to its supposed reliability and stability. Troubled times are likely to strengthen the value of the yen against other currencies considered riskier to invest in.

VaselineSeptember 12, 2024

0 2 minutes read

Frequently Asked Questions about the Japanese Yen

Vaseline

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