Yen holds flat ahead of Tokyo inflation and BoJ rate decision

157.50 in Focus as USD/JPY Slips After Disappointing Amazon and Intel Results.
Despite stronger-than-forecast US growth, futures already factor in a December Fed rate increase.
Ahead of Friday's BoJ decision, most analysts anticipate a December rate increase.

USD/JPY trades just above 157.50. The Dollar remains weaker against the Yen despite better-than-expected US growth, following disappointing results from Amazon (AMZN) and Intel (INTC). Around the European Central Bank's (ECB) decision, the pair set a session high just above 158.00. Two retreats from that level have since left it near the bottom of the session range.

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

At an annual rate of 3.4%, third-quarter US growth exceeded the 3.2% forecast. Core Personal Consumption Expenditures Price Index (PCE) inflation met expectations at 3.1%. Neither release prompted much movement in USD/JPY. Following Wednesday's 10-2 vote to hold rates, futures put the probability of a December Fed increase at near 85%. Such a move would take the US rate underpinning USD/JPY's interest-rate differential to 4.00%-4.25%.

With its rate at 1.25%, the Bank of Japan (BoJ) opened a two-day meeting on Thursday. Most analysts surveyed by Reuters anticipate 1.5% in December. September's quarter-point increases by both the Fed and the BoJ left the USD/JPY interest-rate differential unchanged at 2.50-2.75 points.

2.6% Tokyo CPI Forecast Leads the Calendar

Due on Thursday at 23:30 GMT, Tokyo's October Consumer Price Index (CPI) is forecast to show prices excluding fresh food rising 2.6%, following 2.7%. Friday brings the BoJ decision, with no set release time. BoJ Governor Ueda then holds a news conference at 06:30 GMT, followed by another speaking engagement at 16:00 GMT on November 6. These events all have implications for when the BoJ next raises rates.

Friday's speakers include San Francisco Fed President Daly at 16:00 GMT and St. Louis Fed President Musalem at 16:30 GMT. Following September's 29K increase, the October Nonfarm Payrolls (NFP) report arrives at 13:30 GMT on November 6. It will inform the Fed's December decision.

200-Day EMA Anchors USD/JPY

At present, USD/JPY sits on its 200-day Exponential Moving Average (EMA), just below the 50-day EMA. The recovery from an early-September trough just under 153.00 peaked just above 159.00 on September 24. That high has not been exceeded since. The pair has retraced a little over two-fifths of the decline from its late-July peak just under 164.00.

USD/JPY: Daily Price Chart

Japanese Yen: Key Questions Answered

Which forces determine the Japanese Yen's value?

Among the most actively traded currencies globally, the Japanese Yen (JPY) takes its broad direction from Japan's economic performance. More specific influences include Bank of Japan 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 Yen?

Currency control is part of the Bank of Japan's mandate, making its actions important for the Yen. Direct intervention in currency markets has occurred at times, usually with the aim of weakening the Yen. However, political concerns among Japan's main trading partners discourage frequent intervention. Between 2013 and 2024, the BoJ's ultra-loose monetary policy weakened the Yen against its major peers as the policy gap with other leading central banks widened. More recently, a gradual withdrawal of that ultra-loose stance has offered the Yen some support.

What does the US-Japan bond yield gap mean for the 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 in the yield gap between 10-year US and Japanese bonds supported the US Dollar relative to the Japanese Yen. That gap is now narrowing as the BoJ implements its 2024 decision to move away gradually from ultra-loose policy while other major central banks cut interest rates.

Why does market risk sentiment influence the Yen?

During periods of market stress, investors are more inclined to place funds in the Japanese Yen, which is widely regarded as a safe-haven investment because of its perceived reliability and stability. Market turbulence is therefore likely to lift the Yen against currencies considered riskier investments.