USD/JPY rallies past 159 on rebound in US Dollar, Japanese disinflation


  • USD/JPY rallies to over 159 as US Dollar gains on hawkish Fedspeak and weakening Yen. 
  • Slide in Japanese underlying inflation suggests BoJ will not be able to raise rates much to support JPY.  
  • USD/JPY reenters intervention territory increasing chances authorities could intervene to push it lower. 

USD/JPY continues its relentless climb, reaching the 159s on Friday – only one big figure away from the April highs of 160.32, where the Japanese authorities finally stepped in to prevent a further depreciation of their currency. 

The pair is rallying off the back of a strengthening US Dollar (USD) due to rising US Treasury yields, as Federal Reserve (Fed) officials continue to spout hawkish commentary, playing down any market eagerness to see them cut interest rates any time soon. 

USD/JPY gets further support from a weakening Japanese Yen (JPY), after the release of Japanese inflation data for May showed a fall in core inflation, and what gains there were, were mostly put down to rises in energy prices.

USD/JPY pushes higher on back of rising US Treasury yields

USD/JPY’s recent gains have been driven by the US Dollar due to “Higher (US) bond yields” which are highly correlated to USD, according to Westpac’s Pat Bustamante in his Friday morning report. 

“The 2-year bond yield increased 3 basis points to 4.74%. The 10-year treasury yield increased 4 basis points to 4.26%,” says the Senior Economist, putting the gains down to, “some hawkish talk from a Fed official.”

The Fed official in question was Federal Reserve’s (Fed) Bank of Richmond President Tom Barkin, who urged patience as Fed rate cuts would “hit in time” but that the Fed needed “clearer inflation signals before a rate cut,” and reiterated that the bank would be taking a data-dependent approach. 

According to Westpac’s Bustamente, “Interest-rate markets are pricing in just under two 25 basis points rate cuts this year, one in November and the other in December.” 

The estimate is something of a backwards step from previous expectations that the Fed would make a cut in September as was the case immediately after US Retail Sales bombed earlier in the week. 

Japanese underlying inflation continues to cool 

Experts say the only way to reverse the long-term depreciation in the Yen is to increase interest rates, however, in order to do that, the Bank of Japan (BoJ) needs to to see inflation rising. Japanese Consumer Price Index (CPI) data for May released overnight will likely make them less inclined to begin raising interest rates, according to economists at Capital Economics.  

Despite the headline rate of inflation rising to 2.8% from 2.5% previously, these gains were put mainly down to a 10% rise in utility bills after the government withdrew its subsidies for energy companies. 

National CPI ex Food and Energy, however, cooled to 2.1% from 2.4% previously and showed underlying inflation continuing “to slow rapidly” according to Marcel Thieliant, Head of Asia-Pacific at Capital Economics. 

“The upshot is that inflation excluding fresh food could already fall below the Bank of Japan’s 2% target in June and we still expect it to slow more sharply over coming months than the Bank has been anticipating. While that probably won’t forestall a rate hike at the Bank’s July meeting, it should convince the Bank to leave rates unchanged thereafter,” he concludes. 

USD/JPY enters “intervention zone” 

USD/JPY is now back on the edge of a cloudy “intervention zone” (red shaded area) where the Japanese authorities made direct purchases of Japanese Yen in the open market in late April and early May, to counteract its devaluation. The result was a deep correction in USD/JPY from 160 to 152. 

USD/JPY Daily Chart 

Given the increasing frequency of warnings from currency officials that further weakness will be countered by direct intervention, the chances of the same thing happening again has drastically increased. This, in turn, suggests a pullback may be in the offing. 

 

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended content


Recommended content

Editors’ Picks

EUR/USD flirts with 1.0500 on mixed US PMI readings

EUR/USD flirts with 1.0500 on mixed US PMI readings

 The bullish momentum remains unchanged around EUR/USD on Friday as the pair keeps its trade close to the area of multi-week highs around the 1.0500 barrier in the wake of the release of mixed results from the preliminary US Manufacturing and Services PMIs for the current month. 

EUR/USD News
GBP/USD challenges recent peaks near 1.2450

GBP/USD challenges recent peaks near 1.2450

GBP/USD pushes harder and puts the area of recent two-week highs near 1.2450 to the test on the back of the intense sell-off in the Greenback, while the British pound also derives extra strength from earluer auspicious prints from advanced UK Manufacturing and Services PMIs.

GBP/USD News
Gold keeps the bid bias near its all-time high

Gold keeps the bid bias near its all-time high

Gold prices maintain the bid tone near their record top at the end of the week, helped by the intense weakness around the US Dollar, alleviating concerns surrounding Trump's tariff narrarive, and a somewhat more flexible stance towards China.

Gold News
Dogelon Mars pumps more than 85%, whales dump 128 billion coins and realize a profit

Dogelon Mars pumps more than 85%, whales dump 128 billion coins and realize a profit

Dogelon Mars (ELON) price continues its rally on Friday after rallying more than 18% this week. On-chain data shows that ELON whale wallets realized profits during the recent surge. The technical outlook suggests a rally continuation of the dog-theme meme coin, targeting double-digit gains ahead.

Read more
ECB and US Fed not yet at finish line

ECB and US Fed not yet at finish line

Capital market participants are expecting a series of interest rate cuts this year in both the Eurozone and the US, with two interest rate cuts of 25 basis points each by the US Federal Reserve and four by the European Central Bank (ECB).

Read more
Trusted Broker Reviews for Smarter Trading

Trusted Broker Reviews for Smarter Trading

VERIFIED Discover in-depth reviews of reliable brokers. Compare features like spreads, leverage, and platforms. Find the perfect fit for your trading style, from CFDs to Forex pairs like EUR/USD and Gold.

Read More

Forex MAJORS

Cryptocurrencies

Signatures