Today's data from Japan showed persistently elevated inflation, since headline CPI accelerated 3.3% y/y in October and core (ex-fresh food) ticked up to 3.9% y/y. This puts pressure on the Bank of Japan for a shift in its ultra-loose strategy, as core inflation has stayed above the 2% target and officials recently raised their forecasts to a median of 2.8% for this fiscal year and the next. The central bank has hinted towards an eventual exit from negative rates and further loosened its grip on the yield curve a few weeks ago. At the same time, recent releases from the US, including last week's soft CPI inflation raised the bar for further tightening by the Federal Reserve and boosted market expectations around the timing of rate cuts.
USD/JPY narrowly failed to set new multi-decade high and reversed course, after the US CPI report. It is negative on the month and today's figures from Japan keep it in check. It remains exposed to this month's low (147.14), although 144.43 looks distant.
On the other hand, the Bank of Japan has not shown any intentions for an imminent change in course, despite steps towards normalization. Its US counterpart meanwhile has touted the need for prolonged restrictive stance and may be forced to more hikes, given generally strong economy and labor market.
The recent slide of USD/JPY may have been swift, but was also relatively limited, as the daily Ichimoku Cloud contained it and led to a rebound. The greenback has not lost the ability to push for the July 1990 highs (152.20), but will need catalyst. Markets now turn to today's preliminary PMIs from the US, which could dictate the next leg.
Senior Financial Editorial Writer
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.
With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.