Japanese Yen slips ahead of US CPI inflation data

• Near 157.95, USD/JPY edges higher in early European trading on Tuesday.
• A December interest rate increase remains possible, the BoJ’s meeting summary indicated.
• Tuesday’s US CPI release for October will draw close scrutiny.

With US Consumer Price Index (CPI) inflation figures due later on Tuesday, USD/JPY is trading modestly higher around 157.95 in the early European session. The Bank of Japan’s (BoJ) hawkish stance could limit further gains, while traders remain particularly watchful for currency intervention by the Japanese authorities.

A near-term interest rate increase is needed, according to BoJ board members in the summary of the October policy meeting published on Tuesday. Their assessment signals a good chance of a December move. One of the nine board members said: “The Bank should decide on the next policy interest rate hike when it is possible without becoming overly cautious,”

In the near term, intervention by Japanese officials could strengthen the Japanese Yen (JPY) against the US Dollar (USD). The Ministry of Finance (MOF) published quarterly figures on Monday showing that Japan intervened in the currency market on three days between July 30 and August 3.

At 7.98 trillion JPY ($50.36 billion), the July 30 intervention was the largest, surpassing the earlier record of 6.28 trillion JPY on April 30.

Economists forecast a 0.3% MoM increase in October’s headline CPI and a 0.2% rise in core CPI. Traders will be watching Tuesday’s US inflation release closely.

Evidence of stronger US inflation could bolster the case for the Federal Reserve (Fed) to increase interest rates in December, lending support to the dollar. An annual October CPI reading will, however, be absent from the report because of the government shutdown a year ago.

Yen Gains Support From BoJ Tightening Expectations and JGB Market Dynamics

Rabobank analysts describe the JPY as one of this year’s leading performers, observing that “the JPY is the second best performing G10 currency in the half year to date.” Although they recognise that “this strong ranking has been obtained with the support of sizeable FX intervention over 3 days during the summer, which included joint support with the US Treasury,” they also highlight the currency’s more recent gains on its own merits. As they put it, “the JPY has managed to outperform the USD on a 1-month view with the market displaying a clear reluctance to push USD/JPY above the 158.70 area which coincides with the 200-day sma.”

Turning to monetary policy, Rabobank observes that “while the sell-off in the Nikkei 225 at the end of last week depressed market expectations regarding the chances of a December BoJ rate hike, the strength of September wage data supports the potential for further policy tightening both next month and into next year.” On that basis, the analysts contend that “in our view, this suggests USD/JPY can edge lower to the 155.00 area on a 3-month view.” They also suggest that “another component of any JPY turnaround would likely be a more robust tone in the JGB market,” something which “could contribute to a more supportive backdrop for the JPY in the months ahead.”

On fiscal conditions and capital flows, Rabobank stresses that “Japan’s primary deficit is better than the G7 average and there is speculation that Japan’s huge asset managers may be tempted to repatriate to take advantage of higher JGB yields. This would have positive implications for the JPY.” Regarding forthcoming releases, the analysts note that “Q3 GDP data and October national CPI inflation, both due next week, will be of interest to BoJ watchers,” before concluding that “we remain cautiously optimistic on the medium-term outlook for the JPY.”

Daly Strikes a More Hawkish Tone as Inflation Takes Priority Despite Firm Jobs Figures

An FXS Speechtracker reading of 8/10, against a historical average of 6.4/10, reflected a more hawkish tone than usual from the Fed’s Daly. Inflation, she stressed, “has to be number 1 priority”, despite describing the jobs report as good news and saying wage growth “isn’t booming.” Her focus on falling real wages and inflation remaining elevated for too long, alongside the statement that policy “will have to” be tightened further—while leaving the timing dependent on the data—points to a preference for additional rate rises. Confidence in the strength of the labour market and only limited worries about growth underpin that stance.

A 0.95-point increase took the FXS Fed Sentiment Index to 143.10, highlighting that Fed communications overall remain decidedly hawkish and comfortably above the neutral 100 mark. Alongside the high FXS Speechtracker reading, Daly’s comments put additional upward pressure on expectations of further tightening, conditions that typically support the dollar and yields.

Technical Analysis: Key 100-Day SMA Keeps USD/JPY in Check

Trading below the 100-day Simple Moving Average (SMA), USD/JPY retains a mildly bearish near-term bias on the daily chart, although it remains just above support at the 20-day Bollinger middle band. As the bands narrow, the price is hovering close to their midline. A Relative Strength Index (RSI) reading of around 51 points to neutral momentum, suggesting that recent downward pressure is consolidating for now rather than gathering pace.

The 20-day Bollinger upper band, near 158.90, provides the first resistance on the upside. Together with the 100-day SMA at 159.00, it creates a narrow resistance zone that the pair would need to regain to temper the current corrective bias. Initial support lies around 157.95 at the Bollinger middle band, ahead of the lower band near 156.95. A daily close beneath that lower boundary would leave scope for a more pronounced retreat within the wider range.

(The technical analysis of this story was written with the help of an AI tool. Know more.)