Japanese yen eyes Tokyo Core CPI

  • Tokyo Core CPI expected to slow to 2.4%
  • US dollar slips after Powell’s remarks

The Japanese yen is showing limited movement on Monday. In the European session, USD/JPY is trading at 146.64, down 0.11%. The US dollar retreated against most of the majors last week and fell 1.77% against the yen.

Tokyo Core CPI expected to ease to 2.4%

Tokyo Core CPI, a leading indicator for nationwide inflation, will be released on Tuesday and is the first inflation release for November. The consensus estimate stands at 2.4% y/y, compared to 2.7% in October. The indicator is expected to beat the 2% target for an 18th straight month, as pressure remains on the Bank of Japan to tighten its ultra-loose monetary policy. Tokyo CPI is expected to ease to 3.1%, down from 3.3% in October.

Powell”s comments sink US dollar

Federal Reserve chair Jerome Powell may have intended to sound hawkish on Friday but the markets saw things differently and the US dollar paid the price, with sharp losses against the majors, including the yen which jumped almost 1% on Friday.

Powell noted that monetary policy is “well into restrictive territory” and that inflation is “moving in the right direction”. The markets interpreted these remarks as signals that the Fed is done with rate tightening. Although Powell warned that it was premature to assume that the Fed had achieved a “sufficiently restrictive stance”, investors viewed the remarks as dovish and the US dollar fell sharply.

We are seeing a large disconnect between the Fed and the markets on rate policy. The odds of a rate cut in March are at 59%, rising to 87% in May, according to the CME FedWatch tool. Most Fed members who spoke last week supported the case for holding rates at current levels for some time and it’s unlikely that the Fed will discuss the possibility of rate cuts while inflation is well above the 2% target.

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USD/JPY Technical

  • USD/JPY tested support at 146.27 earlier. Below, there is support at 145.75
  • There is resistance at 147.27 and 148.77

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Kenny Fisher

Kenny Fisher

Market Analyst at OANDA
A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including Investing.com, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.