Japanese Yen holds firm despite hotter-than-expected US producer inflation

• The Japanese Yen strengthens against the US Dollar, supported by falling US Treasury yields and intervention risks in Japan.
• US producer inflation rose by 6.3% in September, significantly exceeding market expectations of 5.3%.
• Weekly US Initial Jobless Claims reached 199K, while investors await Fed Chair Kevin Warsh's speech on Friday.

USD/JPY extends its decline on Thursday, trading around 157.85 at the time of writing, down 0.30% on the day. The pair falls to its lowest level in a week, pressured by a stronger Japanese Yen (JPY) and declining US Treasury yields. However, hotter-than-expected US producer inflation data helps the US Dollar (USD) recover some of its earlier losses.

In the United States (US), the Bureau of Labor Statistics (BLS) reported on Thursday that the Producer Price Index (PPI) rose by 6.3% YoY in September, compared with 5.6% in August and market expectations of 5.3%. On a monthly basis, producer prices increased by 1.3%, well above the 0.5% forecast. Core producer inflation, which excludes food and energy prices, also exceeded expectations, rising by 0.7% MoM and 5% YoY. These figures highlight persistent inflationary pressures in the US and could complicate upcoming monetary policy decisions by the Federal Reserve (Fed).

The US Dollar reacted positively to the release, with the US Dollar Index (DXY) recovering some of its daily losses after briefly falling toward 102.00. The prospect of persistently elevated inflation could encourage the Fed to maintain a restrictive monetary policy stance for longer than previously anticipated.

Meanwhile, US labor market data released on Thursday showed a slight increase in Initial Jobless Claims to 199K for the week ending October 10, compared with 198K previously. However, the figure remained below market expectations of 200K. Continuing Jobless Claims declined by 4K to 1.710M, suggesting relative stability in the labor market.

Despite these US economic releases, the Japanese Yen retains part of its gains, supported by falling US Treasury yields. The benchmark 10-year Treasury yield has dropped by more than 30 basis points from Wednesday's highs, reaching a three-week low of 5.09%. This decline reduces the appeal of the US Dollar against the Japanese currency.

In Japan, expectations of further interest rate hikes by the Bank of Japan (BoJ) also support the Japanese Yen. After raising its benchmark interest rate to 1.25% in September, its highest level in 31 years, the central bank maintains its stance toward a gradual normalization of monetary policy.

On Thursday, BoJ board member Junko Koeda emphasized the need to adjust interest rates in a timely manner, taking into account economic conditions, inflation developments and estimates of the neutral interest rate. Her comments reinforce expectations of additional monetary tightening in Japan.

The Japanese currency also benefits from speculation that authorities could intervene in the foreign exchange market to support the Japanese Yen. However, reports suggest that the BoJ may refrain from delivering another interest rate hike as early as October, preferring to assess the impact of previous policy decisions on the economy.

Investors now turn their attention to Fed Chair Kevin Warsh's speech on Friday. His remarks could provide fresh clues about the trajectory of US interest rates, as markets continue to price in a chance of more than 85% that the Fed will deliver at least one additional rate hike before the end of the year.

USD/JPY technical analysis

In the one-hour chart, USD/JPY trades at 157.84, maintaining a mildly bearish near-term bias as it holds beneath the 100-period simple moving average (SMA) at 158.30 and the 200-period SMA at 158.20. The pair is also capped by nearby horizontal resistance at 157.85, while the Relative Strength Index (14) around 45 suggests fading upside momentum rather than outright oversold conditions.

On the topside, immediate resistance appears at 157.85, ahead of the 200-period SMA at 158.20 and the 100-period SMA at 158.30, with a stronger barrier at 158.45 before the 159.00 level. On the downside, initial support is seen at 157.00, followed by the structural floors at 156.50 and 155.50, where buyers would be expected to defend the broader bullish trend despite the current intraday pullback.

(The technical analysis of this story was written with the help of an AI tool. Know more.)