What lies ahead for a flat Yen with Tokyo inflation and a BoJ rate decision next?

Disappointing Amazon and Intel results weigh on USD/JPY, leaving it just above 157.50.
A December Fed rate increase is already priced into futures despite stronger-than-forecast US growth.
Ahead of Friday's BoJ decision, most analysts anticipate a December rate increase.

The Dollar remains weaker against the Yen following disappointing results from Amazon (AMZN) and Intel (INTC), despite US growth exceeding forecasts. Around the European Central Bank's (ECB) decision, USD/JPY touched a session peak just above 158.00. Two retreats from that level have since left the pair just above 157.50, close to the lower end of its trading range for the session.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Neither the growth figures nor the inflation reading prompted much movement in USD/JPY. Third-quarter US growth came in at an annualised 3.4%, exceeding the 3.2% forecast, while core Personal Consumption Expenditures Price Index (PCE) inflation was in line with expectations at 3.1%. Following Wednesday's 10-2 vote to leave rates unchanged, futures put the probability of a December Fed increase at nearly 85%. Such a move would take the US interest rate underpinning USD/JPY's rate differential to 4.00%-4.25%.

With its policy rate at 1.25%, the Bank of Japan (BoJ) opened a two-day meeting on Thursday. A Reuters poll shows that most analysts anticipate a rate of 1.5% in December. September saw quarter-point increases by both the Fed and the BoJ, leaving the rate differential for USD/JPY unchanged at 2.50-2.75 points.

Which releases and speeches are due?

The timing of the BoJ's next rate increase will be in focus across the upcoming releases and appearances. Tokyo's October Consumer Price Index (CPI) is scheduled for Thursday at 23:30 GMT, with prices excluding fresh food expected to rise 2.6%, following 2.7%. Friday brings the BoJ decision, with no fixed release time, followed by BoJ Governor Ueda's news conference at 06:30 GMT. Ueda is also due to speak at 16:00 GMT on 6 November.

Friday's speaking schedule includes San Francisco Fed President Daly at 16:00 GMT and St. Louis Fed President Musalem at 16:30 GMT. The October Nonfarm Payrolls (NFP) report, due at 13:30 GMT on 6 November, will inform the Fed's December decision. It follows September's increase of 29K.

What do the charts indicate?

At current levels, USD/JPY sits on its 200-day Exponential Moving Average (EMA), while the 50-day average is marginally above it. The rebound from an early-September trough just below 153.00 stalled just above 159.00 on 24 September; that peak has not been surpassed since. So far, the pair has retraced slightly more than two-fifths of the decline from its late-July peak just below 164.00.

Daily chart for USD/JPY

Common questions about the Japanese Yen

Which factors are the main drivers of the Japanese Yen?

Among the most actively traded currencies globally, the Japanese Yen (JPY) takes its broad direction from Japan's economic performance. More specific influences include the Bank of Japan's monetary policy, the gap between Japanese and US bond yields, and traders' appetite for risk, alongside other factors.

Why do Bank of Japan decisions matter for the Japanese Yen?

Currency control forms part of the Bank of Japan's mandate, making its actions important for the Yen. At times, the BoJ has intervened directly in foreign exchange markets, usually to weaken the currency. However, political concerns among Japan's main trading partners have discouraged frequent intervention. Between 2013 and 2024, an ultra-loose monetary stance weakened the Yen against its major peers as the policy gap between the Bank of Japan and other leading central banks grew. More recently, a gradual withdrawal of that ultra-loose policy has offered the Yen some support.

What does the gap between Japanese and US bond yields mean for the Japanese Yen?

By maintaining ultra-loose monetary policy over the past decade, the BoJ increasingly diverged from other central banks, notably the US Federal Reserve. The resulting widening of the yield gap between 10-year US and Japanese bonds supported the US Dollar relative to the Japanese Yen. That differential is now narrowing as other major central banks cut interest rates and the BoJ follows its 2024 decision to move gradually away from ultra-loose policy.

Why does wider market risk sentiment influence the Japanese Yen?

Investors often regard the Japanese Yen as a safe-haven asset, turning more readily to it during periods of market stress because of its perceived stability and reliability. As a result, turbulent conditions are likely to lift the Yen against currencies considered riskier investments.