USD/JPY holds above 145.00 after Tokyo CPI inflation data

Vaseline2 weeks ago

0 3 minutes read

USD/JPY holds above 145.00 after Tokyo CPI inflation data

USD/JPY gathered strength around 145.20 in early Asian session on Friday, gaining 0.26% on the day.
Tokyo’s CPI rose 2.2 percent from a previous increase of 2.6 percent.
August US core PCE data will be closely watched.

USD/JPY is attracting some buyers near 145.20 on Friday during the opening session in Asia. The pair is gaining ground near three-week highs after the Consumer Price Index (CPI) in Tokyo. Attention will turn to the US Personal Consumer Expenditure (PCE) Price Index for August due later on Friday.

Data released by Japan’s Statistics Bureau showed on Friday that Tokyo’s consumer price index (CPI) rose 2.2 percent from a year earlier in September, compared with a 2.6 percent increase in August. Meanwhile, the CPI excluding fresh food, energy climbed 1.6 percent from a year ago in September, compared with a 1.6 percent increase in the previous reading. The Tokyo ex Fresh Food CPI rose 2.0% for the month, compared with a 2.4% increase in August and in line with the market consensus of 2.0%.

The Japanese Yen (JPY) falls in an immediate reaction to CPI inflation data from Tokyo. Slower price growth is unlikely to deter the Bank of Japan (BoJ) from raising interest rates later this year, as BoJ Governor Kazuo Ueda has pledged to raise its borrowing costs if the economy performs as expected.

However, uncertainty over Japan’s interest rate path could limit upside for the JPY and create a tailwind for USD/JPY in the near term. Ueda said this week that Japan’s central bank is in no rush to raise rates and may wait for more data before making any moves. The BOJ is expected to weigh in on rates at its October meeting.

On the other hand, the Fed delivered a jumbo rate cut last week and has signaled another 50 basis point (bps) cuts before the end of the year. On Thursday, Fed Governor Lisa Cook said she approved cutting interest rates by 50 basis points last week as a way to address increased “downside risks” to employment. Accommodative remarks from Fed officials are likely to drag the greenback lower against the JPY in the near term.

Market players will be closely watching the release of the Fed’s preferred gauge of the Personal Consumer Expenditure (PCE) price index on Friday for further stimulus. A surprise reading in inflation could dampen rate cut hopes for the November meeting and provide some support for the US dollar (USD).

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 combat 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.

Vaseline2 weeks ago

0 3 minutes read

Frequently Asked Questions about the Japanese Yen

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