Japanese Yen edges higher as PPI reaffirms BoJ rate hike bets and USD bulls await US CPI

USD/JPY ticks lower during the Asian session as Japan’s PPI reaffirms hawkish BoJ expectations.
Rising Fed rate hike bets act as a tailwind for the US Dollar and should support the currency pair.
Traders now look to the US CPI report for short-term opportunities heading into the weekend.

Haresh Menghani FXStreet

The USD/JPY pair struggles to capitalize on the previous day's recovery momentum and edges lower during the Asian session on Friday. Spot prices currently trade below mid-154.00s, though the downside seems limited as traders might opt to wait for the release of US consumer inflation figures before placing fresh directional bets.

The US Consumer Price Index (CPI) report will be looked to for more cues about the US Federal Reserve's (Fed) future policy path, which, in turn, will drive the US Dollar (USD) and provide a fresh impetus to the USD/JPY pair. In the meantime, data released on Thursday showed that the US Producer Price Index (PPI) accelerated to a 5.4% YoY rate in August, up from the previous month's upwardly revised 4.8% and beating consensus estimates. The data underscored sticky inflation and prompted traders to add to bets for a Federal Reserve (Fed) rate hike next week. The outlook, in turn, assists the USD in preserving the overnight gains and acts as a tailwind for the currency pair.

Meanwhile, the Japanese Yen (JPY) might continue to draw support from an aggressive repricing for a more hawkish Bank of Japan (BoJ). In fact, traders have fully priced in a 25-basis-point (bps) interest rate hike at the upcoming BoJ policy meeting on September 17–18 and are assigning a high probability of a follow-up move in December. Expectations gained traction after BoJ's prominent hawkish members – Hajime Takata and Naoki Tamura – recently pushed for faster and more nimble rate hikes to counter rising inflation. Adding to this, BoJ's Kazuyuki Masu said on Thursday that underlying inflation is approaching 2% and the policy rate is still below the neutral rate.

Moreover, data from the Bank of Japan showed earlier today that Japan's producer inflation grew 7.6% YoY in August, slightly lower than the previous month's upwardly revised print of 7.7%. The PPI, however, remained close to its highest level in over 3-½ years and underscored persistent stickiness in Japanese inflation, which should give the central bank more impetus to hike interest rates. Hawkish BoJ expectations, in turn, might hold back JPY bears from placing aggressive bets and cap the USD/JPY pair. Hence, it will be prudent to wait for strong follow-through buying before confirming that spot prices have formed a near-term bottom and positioning for any further gains.

USD/JPY daily chart

Technical Analysis

The USD/JPY pair maintains a mildly bearish near-term bias under the 38.2% Fibonacci retracement level and the 155.20-155.30 horizontal support breakpoint. A move beyond the said barrier cpi;d face supply first at the 23.6% Fibo., around 158.49,, above which spot prices could climb to the Fibonacci anchor around 164.23.

On the downside, initial demand is aligned with the 38.2% Fibo. retracement at 154.95, followed by deeper supports at the 50.0% retracement near 152.08 and the 61.8% level at 149.21.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Economic Indicator

Producer Price Index (YoY)

The Producer Price Index released by the Bank of Japan is a measure of prices for goods purchased by domestic corporates in Japan. The PPI is correlated with the CPI (Consumer Price Index) and is a way to measure changes in manufacturing cost and inflation in Japan. A high reading is seen as anticipatory of a rate hike and is positive (or bullish) for the JPY, while a low reading is seen as negative (or Bearish).

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