- USD/JPY surges after US inflation data comes out hotter than expected.
- Upside could be capped, however, by expectations of an impending rate cut by the BoJ.
- The outcome could depend on the results of a preliminary survey of wage agreements published Friday.
USD/JPY is trading in the lower 148.00s during the US session on Thursday, up over a third of percentage point after the release of US macroeconomic data.
An unexpected rise in US Producer Prices (PPI) indicates inflation remains stubbornly high and the Federal Reserve (Fed) will need to keep interest rates elevated for longer to combat it.
The maintenance of higher interest rates is positive for the US Dollar (USD) and USD/JPY, because relatively higher interest rates attract greater inflows of foreign capital.
Previously, markets had been pricing in the possibility of the Fed cutting interest rates in May or June, however, following the release of Thursday’s PPI data, the probability of the rate cut in May has dwindled to 9%, according to the CME Group’s FedWatch Tool, which calculates the probabilities of changes in the Fed Funds Rate based on the price of Fed Funds Futures.
The probability of a June rate cut remains relatively high at 62%, but still down from over 70% recorded a few days ago.
Upside for the USD/JPY could be capped by expectations the Bank of Japan (BoJ) will raise interest rates at their March meeting next Tuesday. Such a move would end decades of ultra-loose policy and be the first time since February 2007 the bank has increased interest rates. The expected move comes after higher inflation in Japan and the potential for further price pressures after a series of higher wage agreements between major labor unions and employers.
The Chairman of the Bank of Japan, Kazuo Ueda has consistently said that he will only agree to higher interest rates if the inflation rate sustainably reaches the BoJ’s 2.0% target. Currently headline inflation sits above the target at 2.2% whilst core inflation is at 2.0% – exactly at the target level – from 2.3% in the previous month.
The BoJ has said its decision whether or not to raise rates next Tuesday could hinge on the preliminary results of a survey of big firms' wage talks published on Friday, March 15, according to the Asahi Shimbun.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD edges lower toward 1.0700 post-US PCE
EUR/USD stays under modest bearish pressure but manages to hold above 1.0700 in the American session on Friday. The US Dollar (USD) gathers strength against its rivals after the stronger-than-forecast PCE inflation data, not allowing the pair to gain traction.
GBP/USD retreats to 1.2500 on renewed USD strength
GBP/USD lost its traction and turned negative on the day near 1.2500. Following the stronger-than-expected PCE inflation readings from the US, the USD stays resilient and makes it difficult for the pair to gather recovery momentum.
Gold struggles to hold above $2,350 following US inflation
Gold turned south and declined toward $2,340, erasing a large portion of its daily gains, as the USD benefited from PCE inflation data. The benchmark 10-year US yield, however, stays in negative territory and helps XAU/USD limit its losses.
Bitcoin Weekly Forecast: BTC’s next breakout could propel it to $80,000 Premium
Bitcoin’s recent price consolidation could be nearing its end as technical indicators and on-chain metrics suggest a potential upward breakout. However, this move would not be straightforward and could punish impatient investors.
Week ahead – Hawkish risk as Fed and NFP on tap, Eurozone data eyed too
Fed meets on Wednesday as US inflation stays elevated. Will Friday’s jobs report bring relief or more angst for the markets? Eurozone flash GDP and CPI numbers in focus for the Euro.