The yen remains cautious beneath the 159.00 mark as market participants await the forthcoming US inflation data. US CPI data is anticipated to indicate a reduction in inflationary pressures, potentially dampening expectations for immediate Federal Reserve tightening. A hawkishly leaning BoJ Summary of Opinions has provided some support to the Yen. The Japanese Yen is one of the best performers in an unusually low-volatility market on Wednesday, rising to levels near 159.00 against the US Dollar, after finding support in the 159.45 area.
The USD/JPY experiences a decline, yet buyers are emerging, as attention turns to the forthcoming US Consumer Price Index report, scheduled for release later today. The market consensus anticipates a moderate slowdown in July’s consumer prices, with the yearly CPI growth easing to a 3.4% rate from 3.5% in June. Likewise, the core CPI is seen slowing down to a 2.5% year-on-year reading from the 2.6% rate posted in the previous month. Brown Brothers Harriman’s Elias Haddad notes that the US CPI reading is set to be “a key swing factor for Fed funds rate expectations and set the tone across rates, currencies, and broader risk sentiment.”
He points out that Fed funds futures “currently price in 50% odds of a 25bps hike in September” and that “a soft US CPI would strengthen the case for a dovish repricing in Fed hike expectations and further undermine USD while lifting risk assets.” By contrast, “a hot US CPI will likely deliver a knee-jerk USD bounce via higher front-end yields.” However, he cautions that “with Fed policy already restrictive (assuming a neutral rate of 3.00%), the scope for a material hawkish repricing looks limited, which is a USD headwind.”
The Yen, on the other hand, is drawing some support from the hawkishly leaning Bank of Japan’s Summary of Opinions released earlier this week. The bank’s monetary policy committee showed increasing concern about upside risks to inflation, opening the door to a quarter-point interest rate hike in September, with one committee member suggesting a possible acceleration in the bank’s monetary tightening pace.
