Japanese Yen dips further despite hotter inflation, upbeat employment data

The Japanese Yen (JPY) edges lower for the fifth consecutive day against the US Dollar (USD) on Friday, despite hot Tokyo inflation numbers and an unexpected decline in the Unemployment Rate earlier in the day. The USD/JPY has reached fresh weekly highs above 159.50, drawing closer to the key 160.00 level.

Data released by the Statistics Bureau of Japan on Friday revealed that the advanced Tokyo Consumer Price Index (CPI) eased to a 1.9% year-over-year (Y-o-Y) rate in August from 2% in July, but that the Core CPI, more relevant for the Bank of Japan (BoJ), accelerated to 1.8% (Y-o-Y) in August from 1.7% in July, beating market forecasts of a steady 1.7% rate and approaching the BoJ’s 2% target.

These figures come shortly after the BoJ Deputy Governor Ryozo Himino warned about mounting inflationary pressures and called for timely interest rate hikes to avoid abrupt hikes later if consumer prices run out of control.

Beyond that, Japan’s Unemployment Rate fell to 2.4% in July, its lowest level in the last 12 months, against market expectations of a steady 2.5% reading, boosting expectations that the BoJ might hike interest rates at next month’s meeting.

All eyes are on Fed’s Warsh

The focus on Friday, however, will be on the Jackson Hole meeting of central bankers, namely on Federal Reserve (Fed) Chairman Kevin Warsh’s speech, due later on the day, with investors eager for some hints about the bank’s plans to tame above-target inflation. Fed policymakers put pressure on him on Thursday, calling for monetary tightening amid the hot inflationary pressures.

Kansas Fed President Jeffrey Schmidt said on CNBC that inflation is “still sticky and we've got to continue to find ways to break through" while the Cleveland Fed President Beth Hammack reiterated that it is “time to act,” referring to interest rate hikes.

According to Commerzbank, markets are likely to concentrate on two key aspects of Kevin Warsh’s upcoming remarks. First, investors will be watching “how clearly he speaks regarding a possible interest rate hike in September.” Second, they will be alert to “whether he hints that the Fed might, as part of the five working groups, change the specific figure to which the Fed’s inflation target refers,” a shift that could carry important implications for the Dollar and the broader policy outlook.