After Japan released stronger PPI data, the Japanese yen slightly strengthened.
The uncertainty of when the Bank of Japan will raise interest rates puts the yen bulls on the defensive.
The US dollar maintains its recent gains and provides support for the USD/JPY before the release of the US CPI report.
Prior to the European session on Wednesday, the Japanese yen (JPY) maintained a moderate intraday increase, but lacked bullish confidence due to skepticism about the Bank of Japan's (BoJ) intention to raise interest rates again in December. In addition, the yield of US treasury bond bonds further rebounded, limiting the upside of the yen with low yield.
At the same time, the strengthening of Japan's Producer Price Index (PPI) has opened the door for the Bank of Japan to further tighten its policies. Combined with geopolitical risks and concerns about US President elect Donald Trump's tariff plans, these factors support the safe haven currency, the Japanese yen. In addition, the sluggish price trend of the US dollar (USD) has caused the USD/JPY to hover around the 151.65 range.
Investors are now looking forward to the release of the latest US consumer inflation data, which may provide clues for the Federal Reserve's path towards interest rate cuts. This, in turn, will play a key role in influencing the US dollar and provide new impetus for the USD/JPY exchange rate. Market attention will shift to next week's major central bank event risks - the policy meetings of the Federal Open Market Committee and the Bank of Japan.
The preliminary report released by the Bank of Japan on Wednesday showed that Japan's Producer Price Index (PPI) rose by 0.3% in November, up 3.7% compared to the same period last year. Prior to this, the wage growth data released last Friday showed that basic wages in October increased by 2.7% year-on-year, the fastest growth rate since November 1992, providing another reason for the Bank of Japan to raise interest rates. In addition, Bank of Japan Governor Kazuo Ueda recently stated that the next interest rate hike is approaching, although some media reports suggest that the central bank may not raise interest rates later this month. In addition, Tomohiro Nakamura, a more dovish board member of the Bank of Japan, stated last week that the central bank must be cautious in raising interest rates, exacerbating uncertainty about the bank's December policy decision. The yield of US treasury bond bonds closed at the highest level in at least a week on Tuesday, as more and more people accepted that the Federal Reserve would take a cautious stance in cutting interest rates. The US dollar maintains its gains over the past three days and provides some support for the US dollar/Japanese yen as traders eagerly await the release of the latest US consumer inflation data later today. It is expected that the US Consumer Price Index (CPI) will rise by 0.3% in November, compared to 0.2% last month, a year-on-year increase of 2.7%, and 2.6% in October. At the same time, the core index (excluding food and energy prices) is expected to remain unchanged at 0.3% in November, up 3.3% year-on-year, which has raised concerns about sustained inflationary pressures. These data may not necessarily dispel people's expectations of the Federal Reserve cutting interest rates at next week's meeting, but it means that the number of rate cuts will decrease and the speed of rate cuts will be slower than many people expected.
Overnight, it failed to break through the 152.00 level, which is also held by the 200 day simple moving average (SMA). This is worth caution for bulls. In addition, the neutral oscillation indicator on the daily chart indicates that it is wise to wait for sustained strength to break through the above obstacles before preparing for the continuation of the recent rebound from the low point in the past two months. The US dollar/Japanese yen may then climb to the 152.70-152.75 range, or the 50% Fibonacci retracement level from the multi month high reached in November. Next is the integer 153.00, above which the US dollar/Japanese yen may continue to rise and move towards the 61.8% Fibonacci retracement level (near the 153.70 area).
On the other hand, falling below the 151.55-151.50 range can be seen as a buying opportunity and finding good support near the 151.00 level. However, some subsequent selling may expose the psychological level of 150.00, with some intermediate support at the 23.6% Fibonacci retracement level (near the 150.50 area). If the above support level is not maintained, the US dollar/Japanese yen may fall back to the 149.55-149.50 range, and then fall to the 149.00 integer and 148.65 range, or the lowest level since October 11th touched last week.
Consumer Price Index (YoY)
The measurement method of inflation or deflation trend is to regularly summarize the prices of a basket of representative goods and services and present the data as the Consumer Price Index (CPI). The CPI data is compiled on a monthly basis and released by the US Bureau of Labor Statistics. The year-on-year reading will compare the commodity prices of the reference month with the same period last year. CPI is a key indicator for measuring changes in inflation and purchasing trends. Generally speaking, a high reading is considered favorable for the US dollar (USD), while a low reading is considered unfavorable.
Next Release: Wednesday, December 11, 2024 at 13:30 GMT
Frequency: Monthly
Consensus: 2.7%
Previous value: 2.6%
Source: US Bureau of Labor Statistics
The Federal Reserve has a dual mission of maintaining price stability and maximizing employment. According to this regulation, the inflation rate should be around 2% year-on-year. Since the global pandemic, the inflation rate has become the weakest pillar in central bank directives, and the pandemic has continued until now. Under the influence of supply chain issues and bottlenecks, price pressure continues to rise, and the Consumer Price Index (CPI) is at a high level in decades. The Federal Reserve has taken measures to curb inflation and is expected to maintain a positive stance in the foreseeable future.