USD/JPY hovers near 149.00 ahead of US CPI, BoJ's Noguchi is in the spotlight

USD/JPY snaps the two-day winning streak, trading lower around 149.00 during the Asian session on Thursday. The USD/JPY is facing challenges due to the possibility of the Federal Reserve (Fed) ending the rate-hike cycle.

Investors seem to speculate the US Federal Reserve (Fed) to abandon the idea of a rate hike. Fed Governor Christopher Waller advocates a cautious stance on rate developments, suggesting that tightening in financial markets "would do some of the work for us." Fed Governor Michelle Bowman leans towards another rate hike, citing persistent inflation above the Fed's 2% target.

Moreover, the divergence in perspectives is revealed in the Federal Open Market Committee (FOMC) minutes. The Fed minutes emphasized the significance of relying on data. There was a suggestion that achieving a substantial increase in inflation would be crucial to garnering consensus for shaping monetary policy decisions.

US Producer Price Index (PPI) experienced a rise in September, jumping from 2.0% to 2.2%, surpassing the expected 1.6%. Attention in the market now turns to Thursday's Consumer Price Index (CPI) release, with forecasts indicating a potential decrease in the annual rate from 3.7% to 3.6%. Keep an eye out for the upcoming weekly Jobless Claims report as well.

The US Dollar Index (DXY) is facing challenges, extending losses around 105.50 at the time of writing. This struggle is attributed to the subdued performance of US Treasury yields, with the 10-year Treasury bond yield standing at 4.54% by the latest update.

The Japanese Yen (JPY) weakens on the Bank of Japan's (BoJ) persistent ultra-easy monetary policy. Moreover, BoJ board member Asahi Noguchi is in the spotlight on Thursday, highlighting that the central bank "cannot be optimistic about acceleration in wage growth." Noguchi attributes inflation to import price hikes, including currency factors, and mentions that there is still a considerable distance to achieving the 2% inflation target.

The policymaker emphasizes that there is no immediate need to adjust the Yield Curve Control (YCC) policy. Noguchi underscores the importance of bringing real wages into positive territory and expresses the goal of getting wage growth closer to 3%, although he cannot specify when this might occur.

Earlier in the day, Noguchi expressed his views, suggesting that if central banks refrain from rate hikes and inflation subsides, the risk of a hard landing will be mitigated. He notes that Japan's economy is gradually recovering. In a stage where inflation expectations are on the rise, Noguchi advocates for some flexibility to sustain an accommodative policy under Yield Curve Control (YCC). This approach aims to balance economic recovery with the need to manage inflation expectations effectively.