Michael Wan at MUFG reports that the Japanese Yen (JPY) has borne the brunt of renewed US Dollar (USD) strength following hotter United States (US) inflation data. USD/JPY climbed toward prior highs as markets priced in additional Federal Reserve (Fed) tightening. The move reflects a broader hawkish shift in US rate expectations, while risk assets such as US equities remained resilient.

Yen pressured by US yield repricing

"The dollar extended gains for a third consecutive session on the hawkish repricing, with the yen bearing the brunt, weakening to 157.88 against the dollar and approaching the May 6 high of 157.94."

"More broadly, the higher-than-expected CPI and PPI readings this week pushed traders to price in approximately 20 basis points of additional Fed tightening over the coming year, drove 10-year Treasury yields to their highest since July, and sent 30-year Treasuries clearing at 5%."

"Boston Fed President Collins flagged that rate hikes may be necessary if inflation pressures broaden, though she noted the current shock has masked evidence that underlying inflation was still trending down."

"Kevin Warsh was confirmed as Fed Chair in a 54–45 Senate vote but he faces a more divided FOMC and complex picture in terms of navigating the path ahead including the inflation picture. "

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)