Japanese Yen retreats on above-forecast US CPI and Fed officials’ support for further rate hikes

  • Above-forecast US inflation supports the US Dollar, pushing USD/JPY higher.
  • At least two further rate rises are needed, says Dallas Fed President Logan.
  • The Yen remains under pressure from the sizeable US-Japan yield differential.

US inflation exceeding forecasts, alongside hawkish comments from Federal Reserve (Fed) officials, is bolstering demand for the US Dollar (USD) and driving USD/JPY higher on Tuesday. The pair stands at around 158.76 at the time of writing, a gain of 0.55% on the day.

October’s US Consumer Price Index (CPI) increased by 0.4% MoM, exceeding expectations of 0.3%, although the pace eased from September’s 0.6%. Excluding food and energy, core CPI advanced 0.3%, unchanged from September and above the 0.2% forecast. Owing to last year’s government shutdown, the Bureau of Labor Statistics (BLS) did not release annual figures for October.

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A 12-basis-point rise takes the benchmark 10-year US Treasury yield back to 5.00%, as the US Dollar Index (DXY) advances 0.68% to around 102.38.

According to Dallas Fed President Lorie Logan, the Fed needs “at least two more 25-basis-point (bps) rate increases”, and it “may be possible to move more rapidly this winter.” Citing inflationary pressures extending beyond wartime disruptions to energy supplies, she said the policy rate remains at least 50 basis points short of a modestly restrictive level.

Ahead of the data release, Fed Governor Christopher Waller said December may require a half-point rate increase if October’s core CPI reading is “around 0.3% or higher.” According to the CME FedWatch Tool, traders now price in an 89.2% probability of a 25-bps rise, compared with a 10.8% probability of a 50-bps increase.

By contrast, the Bank of Japan (BoJ) continues to raise rates gradually, with its policy rate standing at 1.25%. At near 2.17%, the 10-year Japanese government bond yield is roughly 283 basis points lower than the equivalent US yield. The Japanese Yen faces pressure from rising US yields and a stronger US Dollar, while the possibility of additional Fed rate rises could sustain a wide differential between US and Japanese interest rates.

Few Japanese economic releases are scheduled for the remainder of the week. USD/JPY traders will therefore turn their attention to comments from Fed officials, alongside producer price figures due from Japan on Thursday and the US on Friday.

US Dollar Posts Its Largest Gain Against the Australian Dollar Today

Today’s percentage moves in the US Dollar (USD) against the major currencies listed appear in the table below. The Australian Dollar recorded the largest decline against the US Dollar.

USD EUR GBP JPY CAD AUD NZD CHF
USD 0.63% 0.88% 0.56% 0.52% 1.11% 0.75% 0.88%
EUR -0.63% 0.23% -0.09% -0.10% 0.47% 0.12% 0.24%
GBP -0.88% -0.23% -0.34% -0.33% 0.24% -0.12% 0.00%
JPY -0.56% 0.09% 0.34% -0.02% 0.56% 0.19% 0.32%
CAD -0.52% 0.10% 0.33% 0.02% 0.58% 0.21% 0.34%
AUD -1.11% -0.47% -0.24% -0.56% -0.58% -0.36% -0.24%
NZD -0.75% -0.12% 0.12% -0.19% -0.21% 0.36% 0.13%
CHF -0.88% -0.24% -0.01% -0.32% -0.34% 0.24% -0.13%

Percentage movements between the major currencies are displayed in the heat map. Select the base currency in the left-hand column and the quote currency in the top row. Selecting the US Dollar on the left and following that row across to the Japanese Yen, for instance, gives the percentage change for USD (base)/JPY (quote) in the corresponding cell.