USD/JPY is gaining traction, approaching 158.10 during the early Asian session on Friday. In September, the Producer Price Index in the United States experienced its most significant increase in four and a half years. BoJ’s Koeda cautioned against excessive caution regarding rate hikes. The USD/JPY pair exhibits an upward momentum, reaching approximately 158.10 in the early hours of trading on Friday in the Asian market. The US Dollar edges higher against the Japanese Yen following hotter-than-expected US Producer Price Index data. Federal Reserve Chair Kevin Warsh’s speech will be the focal point later on Friday. The US PPI experienced a year-on-year increase of 6.3% in September, marking the most significant rise since 2022, as reported by the Bureau of Labour Statistics on Thursday. This reading followed a rise of 5.6% in August (revised from 5.4%) and exceeded the expectation of an increase of 5.3%. The recent US Consumer Price Index data surpassed expectations, bolstering the argument for a Federal Reserve rate increase and strengthening the US dollar.
According to the CME FedWatch tool, federal funds rate futures indicate a likelihood of at least one quarter-percentage-point rate hike by year-end, with the probability of this outcome having increased significantly over the past month. Conversely, hawkish remarks from Bank of Japan officials may strengthen the JPY and pose a challenge for the pair. BoJ board member Junko Koeda stated on Thursday that the central bank ought not to exercise excessive caution regarding interest rate increases, indicating the possibility of a forthcoming hike in borrowing costs. Koeda stated that the Japanese central bank ought to modify its policy rate appropriately, taking into consideration the projected range of the neutral interest rate. Analysts note that the Yen has benefitted from “more risk-off trading conditions overnight,” with USD/JPY “dropping back below the 158.00-level,” even though its performance has been “more mixed against non-USD currencies.” The stronger Yen has also been “encouraged by hawkish comments from BoJ board member Junko Koeda.” In a speech to local leaders in Kumamoto overnight, she stated that “given that there are considerable upside risks to prices in addition to continued accommodative financial conditions, the Bank should not become overly cautious about raising the policy interest rate.”
MUFG highlight that Koeda further “believes the level of the neutral interest rate is considerably above 1%,” a view that “indicates that she still sees room for further rate hikes with the current policy rate at 1.25%.” Against this backdrop, MUFG conclude: “We still expect the BoJ to leave rates on hold this month but hike again before the end of this year in December providing more support for the yen.” Koeda’s speech score at 8.2/10 aligns with the historic average on FXS Speechtracker, indicating a steady tone yet exhibiting a distinct hawkish inclination in contrast to the enduring accommodative environment. Emphasis on upside price risks, a neutral rate “significantly above 1%,” and the necessity to adjust policy to ensure underlying inflation remains below 2% bolster expectations that the Bank of Japan is gearing up for further normalisation, thereby supporting the Yen based on rate-differential considerations. The observation that the September rate hike was indicative of robust economic data, coupled with the perspective that the monetary landscape remains supportive, implies potential for further tightening even in the absence of a predetermined schedule for increases.
By emphasising a range for the neutral rate and a thorough evaluation of financial conditions and funding demand, Koeda reinforces a data-driven yet distinctly hawkish stance that is likely to constrain Yen depreciation and maintain attention on the potential for rising Japanese yields. In the daily chart, USD/JPY exhibits a constrained bias as it remains positioned beneath the 100-day simple moving average and the upper Bollinger band. Price is consolidating just above the Bollinger middle band, while the Relative Strength Index at 53.23 indicates a neutral position, suggesting that directional momentum is limited and currently unable to effectively confront overhead supply. On the topside, immediate resistance is evident at the upper Bollinger band near 158.85, followed by the 100-day SMA at 159.45. A sustained break above this level would be necessary to re-establish a more constructive bullish phase. On the downside, initial support is situated at the Bollinger middle band around 157.95, followed by the lower Bollinger band at 157.05. A decline through this range would strengthen the perspective of renewed selling pressure targeting lower levels.
