USD/JPY Gains Momentum After Soft Japanese CPI Data

The USD/JPY currency pair has found support and is on an upward trajectory following the release of softer Japanese Consumer Price Index (CPI) data. This development has influenced the pair’s movement, but improved US Treasury yields could potentially limit the losses of the US Dollar (USD). Traders are now eyeing the upcoming US Core Personal Consumption Expenditure (PCE) Price Index data, which is expected to shed further light on the USD’s performance.

Japanese CPI Data

The Statistics Bureau of Japan recently published the Tokyo Consumer Price Index (CPI) figures for September. On a yearly basis, the headline CPI rose by 2.8%, slightly lower than the previous reading of 2.9%. Meanwhile, the Core CPI (Year-on-Year) increased by 3.8%, down from the 4.0% recorded in August.

It’s worth noting that Japan’s inflation continues to exceed the Bank of Japan’s (BoJ) 2% target. However, the BoJ is expected to maintain its ultra-loose monetary policy until it is confident that inflation will consistently remain above its minimum target.

US Dollar Performance

The US Dollar Index (DXY) has experienced losses for the second consecutive day, trading at around 106.00 at the time of writing. This decline follows a series of moderate economic datasets from the United States (US).

While the US GDP remained consistent at 2.1%, in line with expectations, the Initial Jobless Claims for the week ending on September 22 improved slightly to 204K from the previous 202K figure. However, this fell short of the expected 215K.

US Pending Home Sales showed a more significant decline of 7.1%, surpassing market expectations of a 0.8% fall and reversing the previous 0.9% rise.

Despite these mixed economic indicators, the yield on the 10-year US Treasury bond has retraced recent losses, currently standing at 4.60%. This improvement in US yields could act as a limiting factor for further losses of the US Dollar (USD).

US Federal Reserve Outlook

The US Dollar has demonstrated strength over the past week, supported by robust economic indicators, reaching its highest levels since December. The performance of US Treasury yields has also contributed to the USD’s resilience.

Chicago Fed President Austan Goolsbee expressed confidence that the Federal Reserve (Fed) will bring inflation back to its target without the need for a recession. This underscores the Fed’s commitment to managing inflation while sustaining economic growth.

Fed President Thomas Barkin acknowledged the positive recent inflation data but cautioned against prematurely determining the future course of monetary policy.

Looking Ahead

The USD/JPY touched the 148.500 area, which is within the Fibonacci Area of 50% from the previous swing low. Our analysis suggests the potential for a new bullish impulse for the dollar.

Traders are eagerly awaiting the release of the US Core Personal Consumption Expenditure (PCE) Price Index, the Fed’s preferred measure of consumer inflation, scheduled for Friday. The annual rate is expected to reduce from 4.2% to 3.9%. This data will likely play a significant role in shaping the future direction of the USD/JPY currency pair.