USD/JPY bounces from yearly lows following US inflation data release
The data show inflation falling at a widely expected pace, but reduce the likelihood of a 50bp rate cut by the Fed.
JPY supported by BoJ’s Nakagawa comments hinting a rate hike is on the way.
USD/JPY recovers to trade just below 141.00 after falling to a fresh nine-month low on Wednesday. The rally comes after the release of US inflation data.
US data leads to an appreciation of the US Dollar (USD) on prospects of a more measured approach to easing from the Federal Reserve (Fed), while the Japanese Yen (JPY) trades broadly firm after comments from a Bank of Japan (BoJ) official suggested a rate hike was closer than previously thought.
U.S. consumer prices rose mostly in line with expectations in August, although the annual change in the headline Consumer Price Index (CPI) missed economists’ expectations by one point, showing a 2.5% increase instead of the 2.6% expected, according to data from the U.S. Bureau of Labor Statistics on Wednesday.
Core CPI (excluding food and energy) also rose as expected, but monthly core CPI rose 0.3% more than expected, suggesting some persistence in underlying prices, which analysts attribute to housing prices.
The data indicated that inflation remains high enough that the Fed will not implement a “jumbo” 50 basis point (bp) cut at its next meeting, but instead take a more measured approach. The odds of a 50 bp (0.50%) cut at the Fed’s Sept. 17-18 meeting fell to 15% after the release, from around 27% beforehand. Meanwhile, a 25 bp (0.25%) cut remains fully priced in, according to the CME FedWatch tool.
“Overall, inflation appears to have been successfully contained, but, with housing inflation still refusing to moderate as quickly as expected, it has not been fully defeated. In those circumstances, we expect the Fed to take a measured approach to cutting interest rates,” commented Paul Ashworth, Chief North American Economist at Capital Economics.
With the chances of a larger US interest rate cut diminishing, the USD strengthened and USD/JPY edged higher. Expectations of relatively higher interest rates are usually favorable for a currency because they lead to higher foreign capital inflows.
Meanwhile, the Japanese Yen (JPY) is trading firm after comments from BoJ Board member Junko Nakagawa recently hinted at another rate hike. Japan’s cash job gains for July also beat expectations, continuing to support the case for further BoJ policy normalization.
“Nakagawa stressed that the BoJ would tighten policy if economic projections materialize, noting that Japan’s low real rates may necessitate an adjustment sooner than expected,” Saxo Bank said in a research note on Wednesday.
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.
