USD/JPY stays quiet near 161.50 ahead of US Inflation test

July 11, 2024 1:09 pm

  • USD/JPY hovers below 161.50 as the US Dollar declines ahead of US Inflation data.
  • The US inflation will influence market speculation for Fed rate cuts.
  • Fears of Japan’s intervention have intensified.

The USD/JPY pair consolidates in a tight range near 161.50 in Thursday’s European session. The asset trades back and forth as investors have shifted to sidelines ahead of the United States (US) Consumer Price Index (CPI) data for June, which will be published at 12:30 GMT.

Economists expect that annual headline inflation decelerated to 3.1% from May’s reading of 3.3%. In the same period, the core CPI, which strips off volatile food and energy prices, is estimated to have grown steadily by 3.4%. On the month, the headline inflation grew at a meager pace of 0.1% after remaining unchanged, with core CPI rising steadily by 0.2%.

The inflation data will significantly impact firm speculation for the Federal Reserve (Fed) to begin lowering interest rates in September. Ahead of the US Inflation data, the US Dollar (USD) faces severe selling pressure as comments from Fed Chair Jerome Powell in his testimony before Congress signaled that the US economic growth has lost momentum.

Fed Powell said “Labor market conditions have cooled considerably compared to where they were two years ago,” and added that the US “is no longer an overheated economy.”

Market sentiment remains cautious amid uncertainty ahead of US inflation data. S&P 500 futures have posted some losses in European trading hours. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, hovers near a four-week low around 104.85.

Meanwhile, in Asia, the Japanese Yen remains weak despite growing speculation of Japan’s stealth intervention. The Japanese Yen is close to a multi-decade low near 162.00 against the US Dollar amid uncertainty over room for further policy tightening by the Bank of Japan (BoJ).

Japanese Yen FAQs

The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.

One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The current BoJ ultra-loose monetary policy, based on massive stimulus to the economy, has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation.

The BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supports a widening of the differential between the 10-year US and Japanese bonds, which favors the US Dollar against the Japanese Yen.

The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.

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