USD/JPY Rebounds from Yearly Lows After US Inflation Data Release
The USD/JPY pair bounced back from nearly year-long lows following the release of US inflation data. The data revealed a decrease in inflation at a rate that was broadly anticipated, reducing the likelihood of a 50 basis points rate cut by the Federal Reserve (Fed). The Japanese Yen (JPY) received support from comments made by BoJ’s Nakagawa, hinting at a potential interest rate hike on the horizon.
After hitting a new nine-month low on Wednesday, USD/JPY recovered to trade just below 141.00. The rebound was driven by the US inflation data, which led to a strengthening of the US Dollar (USD) as the Fed signaled a more cautious approach to monetary easing. On the other hand, the JPY remained strong following remarks from a Bank of Japan official suggesting an imminent interest rate hike.
The US consumer prices for August mostly met expectations, with the annual change in the Consumer Price Index (CPI) slightly below forecasts. Core CPI, excluding food and energy, rose as expected, but monthly core CPI saw a higher-than-expected increase. This stubbornness in core prices was attributed to persistent dwelling prices.
The data indicated that inflation remains at a level where a significant 50 basis points cut from the Fed is unlikely, leading to a more measured approach instead. The probability of a 50 basis points cut at the next Fed meeting decreased to 15%, while a 25 basis points cut remains fully priced in.
With the diminishing chances of a larger cut in US interest rates, the USD strengthened, causing USD/JPY to rise. Higher interest rate expectations typically support a currency as they attract more foreign capital inflows. Meanwhile, the JPY remained firm on the back of positive economic indicators from Japan and hints of a potential rate hike from the BoJ.
In conclusion, the US inflation data had a significant impact on the currency markets, influencing the strength of the USD and JPY. The likelihood of a more measured approach by the Fed to interest rate cuts resulted in a stronger USD, while positive economic indicators from Japan supported the JPY. Understanding these factors can help individuals make informed decisions regarding their finances and investments.