- USD/JPY rises after better-than-expected US inflation data.
- However, the rise could be limited by expectations of an imminent rate cut by the BoJ.
- The outcome could depend on the results of a preliminary survey on wage agreements released on Friday.
USD/JPY is trading lower at 148.00 during the US session on Thursday, up more than a third of a percentage point following the release of US macroeconomic data.
An unexpected rise in producer prices (PPI) in the US indicates that inflation remains stubbornly high and that the Federal Reserve (Fed) will have to keep interest rates high for longer to combat it.
Maintaining higher interest rates is positive for the US Dollar (USD) and USD/JPY, because relatively higher interest rates attract greater foreign capital inflows.
Previously, markets had been pricing in the possibility of the Fed cutting interest rates in May or June, however, following the release of PPI data on Thursday, the likelihood of a rate cut occurring in May has increased. has fallen to 9%, according to the CME Group's FedWatch tool, which calculates the probabilities of changes in the federal funds rate based on the price of federal funds futures.
The probability of a rate cut in June remains relatively high at 62%, but still below the more than 70% recorded a few days ago.
USD/JPY's rise could be limited by expectations that the Bank of Japan (BoJ) will raise interest rates at its March meeting next Tuesday. The move would end decades of ultra-loose policy and would be the first time since February 2007 that the bank has raised interest rates. The move is expected following rising inflation in Japan and the possibility of new price pressures following a series of higher wage agreements between major unions and employers.
The President of the Bank of Japan, Kazuo Ueda, has repeatedly stated that he will only agree to raise interest rates if the inflation rate sustainably reaches the 2.0% target set by the BoJ. Headline inflation is currently above target at 2.2%, while core inflation is at 2.0% – exactly on target – from 2.3% the previous month.
The BoJ has stated that its decision on whether or not to raise rates next Tuesday could depend on the preliminary results of a survey on large companies' wage negotiations published on Friday, March 15, according to the Asahi Shimbun.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
