Japanese Yen retreats despite hotter inflation as focus shifts to Jackson Hole

USD/JPY rises 0.14% on Friday and trades around 159.60 at the time of writing, extending its advance for a fifth consecutive day. The Japanese Yen (JPY) remains under pressure against the US Dollar (USD), despite Japanese inflation and employment data that could fuel expectations of further monetary tightening by the Bank of Japan (BoJ).

Data released on Friday by the Statistics Bureau of Japan showed that the Tokyo Consumer Price Index (CPI) eased to 1.9% YoY in August from 2% in July. However, core inflation accelerated to 1.8% from 1.7% in the previous month, beating market expectations for an unchanged 1.7% reading.

The acceleration brings underlying inflation closer to the BoJ’s 2% target and follows recent comments from BoJ Deputy Governor Ryozo Himino. Himino warned about persistent inflationary pressures and argued in favor of timely interest rate hikes to avoid the need for more aggressive tightening later.

Japan’s labor market data also strengthens the case for a less accommodative monetary policy. The Unemployment Rate fell to 2.4% in July, its lowest level in 12 months, compared with market expectations for an unchanged 2.5% reading.

BoJ hawkish bias underpinned as subsidies mask underlying price pressure

Economists at Societe Generale highlight that the “resumption of electricity and gas subsidies weighed on inflation and should continue to drag on CPI through the October data,” temporarily suppressing headline price growth. They add that, contrary to their earlier expectations, “we had expected food inflation to enter a re-acceleration phase from August, but higher upstream costs appear to need more time to feed through to consumer prices.” Even so, Societe Generale stresses that “underlying price pressure remains, however,” pointing to comments from BoJ Deputy Governor Himino that “repricing activity is likely to intensify in the coming months,” while “the Teikoku Databank survey points to another wave of price revisions toward year-end.” In their view, “this continues to support the BoJ’s hawkish path.”

The figures have failed to provide meaningful support to the Japanese Yen, however, as investors turn their attention to the United States and the annual gathering of central bankers at Jackson Hole. Federal Reserve (Fed) Chair Kevin Warsh is due to speak on Friday, with markets looking for clues about how the US central bank intends to respond to persistently elevated inflationary pressures.

The tone among several Fed officials remains supportive of tighter monetary policy. Kansas City Fed President Jeffrey Schmid said inflation remains sticky and that policymakers need to continue looking for ways to bring it down. Cleveland Fed President Beth Hammack, meanwhile, argued that it is time to act on interest rates.

Against this backdrop, the firmer US Dollar is outweighing supportive Japanese data for the Japanese Yen. USD/JPY is therefore approaching the psychological 160.00 level, with investors awaiting Warsh’s speech for fresh clues about the outlook for US interest rates.

USD/JPY technical analysis

In the one-hour chart, USD/JPY trades at 159.59, holding a constructive bullish bias as it stays above the rising 100-period and 200-period simple moving averages at 159.29 and 159.13, respectively. The pair also remains supported by an upward-sloping trend line, while the Relative Strength Index (RSI) around 59 suggests moderate bullish momentum without immediate overbought stress.

On the downside, initial support is seen at the nearby horizontal level of 159.50, followed by the trend-line area near 159.34 and then the clustered 100-period and 200-period SMAs at 159.29 and 159.13. On the topside, the next hurdle emerges at horizontal resistance around 159.78, and a sustained break above this barrier would likely open the way for a continuation of the intraday advance.

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