US CPI inflation data due: Japanese Yen slips

• 157.95 is the level for USD/JPY as it edges higher in early European trading on Tuesday.
• A December interest rate increase remains possible, the BoJ meeting summary indicated.
• Tuesday’s US October CPI inflation release is a key focus for markets.

157.95 marks the level for USD/JPY, which is modestly higher early in Tuesday’s European session. Further gains might be constrained by the Bank of Japan’s (BoJ) hawkish position. Traders are closely monitoring the risk of currency intervention by Japanese authorities, while attention also turns to the US Consumer Price Index (CPI) inflation release later on Tuesday.

A December rate increase has a good chance of materialising, according to the BoJ’s October policy meeting summary published on Tuesday. Board members consider a near-term increase necessary. 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). Data published on Monday by the Ministry of Finance (MOF) showed that Japan intervened in currency markets on three days between July 30 and August 3, according to the quarterly figures.

At 7.98 trillion JPY ($50.36 billion), the July 30 intervention was the largest. It surpassed the previous record of 6.28 trillion JPY established on April 30.

For Tuesday’s US inflation release, economists forecast a 0.3% MoM increase in October headline CPI. Core CPI is expected to rise by 0.2%, with traders watching both measures closely.

Evidence of stronger US inflation could bolster the case for the Federal Reserve (Fed) to increase interest rates in December, supporting the Greenback. The release will, however, omit an annual October CPI reading because of the government shutdown a year earlier.

JPY gains support from BoJ tightening expectations and JGB market dynamics

Rabobank analysts identify the JPY as one of this year’s leading performers, saying that “the JPY is the second best performing G10 currency in the half year to date.” While recognising 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 more recent gains driven by the currency’s own merits. They note specifically that “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.” The analysts draw the conclusion 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,” 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.” For the coming week, the analysts highlight that “Q3 GDP data and October national CPI inflation, both due next week, will be of interest to BoJ watchers,” concluding that “we remain cautiously optimistic on the medium-term outlook for the JPY.”

8/10 hawkish score: Daly prioritises inflation despite firm jobs data

An FXS Speechtracker reading of 8/10, against a historical average of 6.4/10, reflects a more hawkish tone than usual from the Fed’s Daly. Inflation “has to be number 1 priority”, she emphasised, despite describing the jobs report as good news and noting that wage growth “isn’t booming.” Her focus on falling real wages, persistently high inflation and the view that policy “will have to” be tightened further—without departing from data-dependent timing—points to a preference for additional rate increases. Confidence in labour market strength and only limited concern over growth underpin that position.

A 0.95-point increase took the FXS Fed Sentiment Index to 143.10, leaving aggregate Fed communication firmly hawkish and substantially above the neutral 100 threshold. Alongside the high FXS Speechtracker reading, Daly’s comments provide a further lift to expectations of additional tightening. Such conditions are typically supportive of the Dollar and yields.

Technical Analysis: 100-day SMA continues to limit USD/JPY upside

Below the 100-day Simple Moving Average (SMA), USD/JPY retains a mildly bearish short-term bias on the daily chart. The pair is holding only just above support at the 20-day Bollinger middle band. Narrowing Bollinger bands and a price close to their midline, together with a Relative Strength Index (RSI) near 51, indicate neutral momentum. For now, these signals suggest that recent downward pressure is consolidating rather than intensifying.

The first upside hurdle is the 20-day Bollinger upper band at approximately 158.90. Just above it, the 100-day SMA at 159.00 creates a tight resistance zone; a recovery above this area would be needed to moderate the current corrective bias. Support initially lies at the Bollinger middle band near 157.95, ahead of the lower band around 156.95. A daily close beneath that lower limit would create scope for a larger retreat within the broader trading range.

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