The Japanese Yen has experienced a moderate increase, buoyed by stronger-than-expected domestic inflation rates that have rekindled speculation regarding potential interest rate hikes by the Bank of Japan (BoJ). Following the release of inflation data, the market sentiment remains optimistic, yet the rise in U.S. Treasury yields poses resistance to any significant gains for the Yen.
Recent data from Japan indicated that the National Consumer Price Index (CPI) dipped from 2.5% to 2.3% year-on-year in October, while core CPI — excluding fresh food — remained stable at 2.3%. This indicates persistent inflationary pressures, keeping the BoJ’s interest rate hike discussions on the table. Concurrently, Prime Minister Shigeru Ishiba announced a substantial economic stimulus package, valued at ¥39 trillion, which adds further support to the Yen and impacts the USD/JPY exchange rate.
However, the ongoing favorable risk appetite in global markets and the elevated U.S. Treasury yields are keeping a lid on bullish sentiments towards the lower-yielding Yen. The market remains cautious regarding potential inflation resurgence due to U.S. policies, which could result in a slower pace of interest rate cuts by the Federal Reserve. This scenario contributes to the U.S. Dollar maintaining its strength near peaks last observed over a year ago.
On the other side of the Pacific, recent U.S. economic reports showed a decline in initial jobless claims, reaching a seven-month low, alongside a rebound in existing home sales — a positive signal following a notable drop in September. Yet, some manufacturing indices indicated contraction, suggesting mixed economic signals. Prominent Federal Reserve officials have noted that inflation is trending downwards, advocating for a cautious approach towards future interest rate adjustments.
In terms of technical analysis, the USD/JPY pair appears resilient below the 154.00 level. Market participants are observing levels of around 153.30 – 153.25 as potential opportunities, while a downturn beneath 153.00 could lead to further declines to mid-152.00s. Conversely, the immediate support near the psychological 155.00 level suggests that a sustained rally could push the pair towards higher resistance areas, indicating active trading conditions in the upcoming days.
