Yen rises on stronger inflation

The Japanese yen has reversed directions on Friday after sharp losses a day earlier. Early in the North American session, USD/JPY is trading at 156.54, down 0.53% on the day at the time of writing. The yen continues to .stumble and has declined around 2% this week.

A day after the Bank of Japan maintained interest rates, the November inflation report showed a strong increase in inflation. Annually, inflation rose to 2.9% from 2..3% in October, above the market estimate of 2.6%. The jump in inflation was driven by a sharp climb in food, gasoline and electricity prices. Monthly, inflation rose to 0.6%, up from 0.4% and higher than the forecast of 0.2%.

The core inflation rate rose to 2.7% y/y, up from 2.3% and above the market estimate of 2.3%. This was the highest level in three months. The core rate has been above the BoJ's inflation target of 2% for over two years and the BoJ has responded by raising rates twice this year.

At the Wednesday meeting, Governor Ueda said at his press conference that the BoJ could afford to move slowly on raising rates since underlying inflation was only increasing at a "moderate pace". The central bank is being very cautious, as it has concerns about rising wages, a weak global economy and the threat of tariffs from the incoming Trump administration. The markets are expecting the BoJ to raise rates sometime in the first quarter of 2025 but the BoJ is unlikely to tip its hand as to exactly when it will press the rate-trigger.

In the US, the PCE Price Index, which is considered the Fed's preferred inflation indicator, eased to 0.1% in November, below the October gain of 0.3% and the market estimate of 0.2%. The core rate fell to 0.1%, down from 0.2% in October and the market estimate of 0.2%.

• There is resistance at 158.68 and 159.93
• 156.56 and 155.31 are the next support levels