Japanese Yen Boosted Against US Dollar on Soft US CPI. Has USD/JPY Broken Trend?

Japanese Yen, USD/JPY, US Dollar, Bank of Japan, Fed, Trend – Talking Points

  • USD/JPY fell and looks vulnerable to start the week
  • The Bank of Japan could have a tricky period ahead of it on fundamentals
  • If the yen continues to strengthen, is the peak in place for USD/JPY?

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USD/JPY remains under pressure at the start of this week after falling over the weekend in the wake of weaker US CPI data.

The deceleration in price pressures has given the impression that the Fed may not have to raise rates as far next year as expected.

The easing in the CPI did not change swap and futures prices for the December meeting of the Federal Open Market Committee (FOMC). Both markets expect a rise of 50 basis points.

Last week, the Japanese PPI remained at a high level, with mixed results in the data. The month-on-month figure for October was 0.6% instead of the previously expected 0.7%.

The year-over-year reading was 9.1% instead of the expected 8.8% and previous 9.7%. The difference is explained by an upward revision of previous months.

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It’s a big week ahead for Japanese data. GDP, industrial production, machinery orders and national CPI reports lead the way from Tuesday.

The inflation print could be particularly crucial in light of the market’s reaction to the US CPI and the implications for the Bank of Japan’s (BoJ) approach to monetary policy going forward.

The BoJ has a policy rate of -0.10% and maintains yield curve control (YCC) by targeting a band of +/-0.25% around zero for Japanese government bonds (JGB) until ‘in 10 years.

According to a Bloomberg survey of economists, Japanese GDP is expected to grow 0.3% in the third quarter from the previous three months, for an annual figure of 1.2%. Both readings are seasonally adjusted.

This against 3.7% YoY CPI expected for October, illustrating the vulnerability of the Japanese economy to stagflation at this time.

USD/JPY TECHNICAL ANALYSIS

USD/JPY broke through the lower boundary of an ascending trend channel last week in a sharp move that could signal the end of the uptrend.

Previous support levels that were broken may now provide breakout resistance at 140.35, 143.53, 145.11 and 145.47.

Support could be seen at previous low and breakout point of 135.81 and 135.57 respectively.

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Chart created in TradingView

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— Written by Daniel McCarthy, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter

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