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Japanese Yen Drifting, US Inflation Next

The Japanese yen has steadied after posting strong gains on Tuesday. In the European session, USD/JPY is trading at 145.67, up 0.03%.

Japan recorded stronger-than-expected gains in household spending and retail sales, but it’s questionable whether this positive trend will continue. Inflation hit 3% in September for the first time in over 30 years, raising concerns, but inflation is still at levels that other major central banks can only dream of.  The government is hoping that the finance package that was announced on Tuesday will reduce inflation and boost growth.

Still, the outlook for the yen, which has been on a prolonged downturn against the dollar, remains grim. The Bank of Japan is unlikely to veer from its ultra-loose policy, despite the declining yen and rising inflation, unless inflation continues to rise. The Federal Reserve is expected to deliver additional oversize rate hikes, which will widen the US/Japan rate differential and likely push the dollar lower.

At the BoJ’s meeting in late October, it was business as usual as policy makers maintained their dovish guidance. The BoJ remains an outlier amongst the major central banks, with a growing realization that any changes in policy will have to wait until Governor Kuroda’s term ends in April 2023.

In the US, the dust from the mid-term election hasn’t yet settled. The Republicans are expected to retake the House, but with a very slim majority, while the makeup of the Senate is unlikely to be determined for several weeks. The election hasn’t had much impact on the movement of the US dollar, as investors are focussed on the US inflation report on Thursday.

USD/JPY Technical

  • There is resistance at 147.07 and 148.45
  • 145.28 and 144.20 are providing support

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