USD/JPY to 32-Year Highs in the Aftermath of another Hot US Inflation Report
USD/JPY Analysis
US Core Consumer Price Index (CPI), which excluded energy and food prices, climbed to 6.6% year-over-year in September and the highest level since 1982, as Thursday's data showed. The all-inclusive measure eased marginally to 8.2% y/y, from 8.3% in the previous month, helped by the drop in oil prices over the last few months.
These elevated inflation figures came hot on the heels of a strong jobs report earlier in the month, which revealed the addition of 263,000 payrolls in September and a new pullback of Unemployment to 3.5% and pre-pandemic levels.
These data sets support the Fed's aggressive tightening actions, which were reinforced by recent hawkish commentary and the last week's minutes from the latest policy meeting, further highlighting the stark policy contrast with the Bank of Japan.
Markets have also become more aggressive in their expectations around the Fed's next move, with CME's Fed Watch Tool pricing in another 75 bps rate hike in November and now projecting rates as high as 5% next year. [1]
The unfavorable monetary policy differential is the main driver behind this year's explosive USD/JPY rally that forced Japanese authorities to currency intervention a few weeks back. On Friday, the pair hit another milestone, as it blew past the 1998 peak and trades to the highest level in thirty-two years.
Last week's performance was the best in nearly three months, and the advance brings the July 1990 high at around 152.20 in the spotlight. Today it steadies as the US Dollar faces headwinds, while investors may be cautious of another potential intervention to support the Yen.
No such measure had been announced at the time of writing, but over the weekend, BoJ's Deputy Governor characterized recent fluctuations as too rapid and too one-sided according to Reuters. [2]
Regardless of intervention, a pullback towards 145.90 could be in the cards. However, a strong catalyst would be required for a correction towards the EMA200 (at around 143.70), whereas the region form that level on contains significant tech levels.
Nikos Tzabouras
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. With extensive experience in market analysis and a strong foundation in international relations, he brings a unique perspective to financial markets. Nikos emphasizes not only technical analysis but also on fundamentals and the growing influence of geopolitics on financial trends.
As a Senior Financial Editorial Writer, he delivers comprehensive and forward-looking insights across a wide range of asset classes, including equities, commodities, and currencies. His work explores how macroeconomic events, political developments, and global policies impact market dynamics, providing readers with a deeper understanding of both short-term movements and long-term trends.
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