- USD/JPY gather strength around 145.20 in Friday’s early Asian session, gaining 0.26% on the day.
- Tokyo CPI rose 2.2% YoY in September vs. a 2.6% rise prior.
- The US August core PCE data will be closely monitored.
The USD/JPY pair attracts some buyers to near 145.20 on Friday during the early Asian session. The pair gains ground near three-week highs after the Tokyo Consumer Price Index (CPI). The attention will shift to the US Personal Consumption Expenditures (PCE) Price Index for August, which is due later on Friday.
Data released by the Statistics Bureau of Japan showed on Friday that the headline Tokyo Consumer Price Index (CPI) increased 2.2% YoY in September, compared to a 2.6% rise in August. Meanwhile, the CPI ex Fresh Food, Energy climbed 1.6% YoY in September, compared to a 1.6% rise in the previous reading. Tokyo CPI ex Fresh Food rose 2.0% for the said month, compared to a 2.4% rise in August and in line with the market consensus of 2.0%.
The Japanese Yen (JPY) edges lower in an immediate reaction to Tokyo’s CPI inflation data. The slower price increase is unlikely to deter the Bank of Japan (BoJ) from raising interest rates later this year as BoJ Governor Kazuo Ueda committed to hiking its borrowing costs if the economy performs as expected.
However, uncertainty surrounding Japan’s interest rate path might cap the upside for the JPY and create a tailwind for USD/JPY in the near term. Ueda said this week that the Japanese central bank is not in any rush to raise rates and can wait for more data before making any moves. The BOJ is expected to stand pat on rates at the October meeting.
On the other hand, the Fed delivered a jumbo rate cut last week and signaled another 50 basis points (bps) reductions before year-end. On Thursday, Fed Governor Lisa Cook said that she endorsed the 50 bps interest rate cut last week as a way to address increased "downside risks" to employment. The dovish remarks from the Fed officials are likely to drag the Greenback lower against the JPY in the near term.
Market players will closely watch the release of the US August core Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred inflation indicator, on Friday for fresh impetus. A surprise upside inflation reading could dampen the rate-cut hopes for the November meeting and provide some support to the US Dollar (USD).
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential 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 directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The current BoJ ultra-loose monetary policy, based on massive stimulus to the economy, has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation.
The BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supports a widening of the differential between the 10-year US and Japanese bonds, which favors the US Dollar against the Japanese Yen.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
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