USD/JPY hovers above 156.00 as markets reassess BoJ tightening chances

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The US Dollar is trading sideways at levels right above 156.00 against the Japanese Yen on Friday, after retreating from 10-month lows near 158.00 last week.

The Dollar - Yen is trending water above 1.5600 after pulling back from highs near 158.00.
Strong Tokyo inflation and upbeat Japanese data support expectations of a BoJ rate hike.
The US Dollar remains weighed amid heightened hopes of further Fed easing.

The US Dollar is trading sideways at levels right above 156.00 against the Japanese Yen on Friday, after retreating from 10-month lows near 158.00 last week. Hopes of BoJ tightening are supporting the Yen, though investors’ concerns about Japanese PM Takaichi’s fiscal largesse are limiting upside attempts.

Japanese data released on Thursday revealed that the advanced Tokyo Consumer Prices Index (CPI) grew at a steady 2.7% year-on-year pace in November, while the core CPI remained steady at a 2.8% yearly rate, against expectations of a moderation to 2.7%.

Apart from that, Japanese Retail Trade jumped 1.7% year-on-year in October, more than twice the 0.8% market consensus, and following a downwardly revised 0.2% gain in September. In a similar line, Industrial Production rose 1.4% against expectations of a 0.6% decline.

BoJ-Fed monetary divergence supports the Yen

These figures endorse the theory that the Bank of Japan will hike interest rates by 25 basis points in December or January at the latest, which has been providing support to the Japanese Yen through the current week.

Investors, however, remain concerned about the country’s increasing government debt, which is acting as a headwind for the Yen. Japan’s Prime Minister, Sanae Takaichi, approved a 21.3 Trillion Yen (USD 136 billion) stimulus package last week, aimed to help households cope with the higher inflationary pressures, which sent the Yen lower across the board.

In the US, dovish comments from Federal Reserve officials and downbeat US Retail Sales figures released earlier this week have boosted hopes of a quarter-point Fed rate cut in December. Furthermore, rumours that the White House’s National Economic Council (NEC) Director, Kevin Hassett, is the best positioned to replace Fed Chair Jerome Powell in May are feeding hopes of further rate cuts down the road, and keeping the US Dollar rallies subdued.

Economic Indicator

Tokyo Consumer Price Index (YoY)

The Tokyo Consumer Price Index (CPI), released by the Statistics Bureau of Japan on a monthly basis, measures the price fluctuation of goods and services purchased by households in the Tokyo region. The index is widely considered as a leading indicator of Japan’s overall CPI as it is published weeks before the nationwide reading. The YoY reading compares prices in the reference month to the same month a year earlier. Generally, a high reading is seen as bullish for the Japanese Yen (JPY), while a low reading is seen as bearish.

Economic Indicator

Tokyo CPI ex Fresh Food (YoY)

The Tokyo Consumer Price Index (CPI), released by the Statistics Bureau of Japan on a monthly basis, measures the price fluctuation of goods and services purchased by households in the Tokyo region excluding fresh food, whose prices often fluctuate depending on the weather. The index is widely considered as a leading indicator of Japan’s overall CPI as it is published weeks before the nationwide reading. The YoY reading compares prices in the reference month to the same month a year earlier. Generally, a high reading is seen as bullish for the Japanese Yen (JPY), while a low reading is seen as bearish.