Japanese yen roller-coaster ride continues

The Japanese yen continues to take investors and traders on a roller-coaster ride. After climbing 1.2% on Wednesday, USD/JPY gave almost all of those gains on Thursday, declining 1.05%. The yen has taken a breather today and is trading at 152.63 in the European session, down 0.19% on the day.

Producer prices in Japan climbed 4.2% y/y in January, up from an upwardly revised 3.9% in December and above the market estimate of 4.0%.  PPI accelerated for a fifth consecutive month and posted its highest level since May 2023.  The gain was driven by higher food prices.  Monthly, PPI eased to 0.3%, down from 0.4% in December and in line with the market estimate.

The hotter-than-expected PPI report reflects persistent inflationary pressures and follows the core CPI reading for December, which hit 3%, its highest annual level in 16 months.  With inflation moving higher, expectations are growing that the Bank of Japan will raise interest rates further in the near term.

The Bank has signaled that it will raise rates if wage growth increases and keeps inflation sustainable at the BoJ's 2% target.  In anticipation of higher interest rates, Japan's 10-year bond yields have been rising and are close to a 15-year high.

In the US, the PPI release showed little change in January.  PPI rose 0.4% m/m, after an upwardly revised 0.5% gain in December.  This was higher than the market estimate of 0.3%.  Annually, PPI rose 3.5%, after an upwardly revised 3.5% gain in December.

The US wraps up the week with the January retail sales report.  The markets are bracing for a contraction, with a market estimate of -0.1%, after the 0.4% gain in December.  Annually, retail sales are expected to dip to 3.7%, after a 3.9% gain in December.

• USD/JPY is testing support at 152.73.  Below, there is support at 152.29
• 153.00 and 153.44 are the next resistance lines