Japanese Yen soars as Tokyo Core CPI falls to 2%

The Japanese yen is sharply higher on Friday. USD/JPY is trading at 143.49 in the European session, down a massive 1.1%.

Tokyo Core CPI matches BoJ’s target

Tokyo Core CPI, which excludes fresh food, slowed to 2% in September, down from 2’s.4% in August and matching the market estimate. The drop was largely driven by the resumption of government subsidies for utility bills.

The inflation reading indicates that Japan is on track to hit the Bank of Japan’s target of sustainable 2% inflation and the yen has responded with sharp gains today. This reading will support the case for further rate hikes, although that’s unlikely until December or early next year.

Governor Ueda said this week that the BoJ is not in any rush to hike rates and that the focus will be on services prices data for October, which won’t be released until November, too late for the October 31 meeting. Wages have been rising but it remains to be seen if this will translate into higher services inflation. If it does, there will be pressure on the BoJ to raise rates at the December meeting.

The week wraps up with US Core PCE Price Index, which is considered the Fed’s preferred inflation indicator. The index has hovered at 2.6% for the past three months and is expected to tick up to 2.7% for August. Monthly, the Core PCE is expected to remain at 0.2%. An unexpected reading could shake up the US dollar and the rate-cut odds for the Fed’s November meeting. The odds of a 50-basis point cut have slipped to 47%, down from 54% a day earlier, according to the CME’s FedWatch tool.

USD/JPY technical

• USD/JPY faces weekly resistance lines at 147.58 and 150.66.

• There is support at 142.67 and 140.84.