The Japanese yen strengthened significantly on Friday following a robust inflation report. During the European trading session, the USD/JPY pair was trading at 150.19, marking a 0.87% decrease for the day. The yen’s value dipped below the significant 150 level for the first time since October 21.
Tokyo Core CPI Exceeds Expectations
The Tokyo Core CPI, a critical inflation metric that excludes food and energy prices, saw a 2.2% increase in November. This figure surpassed market expectations of 2.1% and the previous month’s gain of 1.8%. Additionally, the Tokyo CPI surged by 2.6% in November, surpassing both the October figure of 1.8% and the forecasted 1.9%.
The strong inflation data led to a sharp increase in the yen’s value as expectations for a potential rate hike in December grew. While there is uncertainty in the markets regarding the Bank of Japan’s (BoJ) next move, there is a 60% chance of a rate cut in December. The BoJ has hinted at its intention to continue raising rates and moving towards normalization. However, if the BoJ maintains its current stance next month, a rate cut might be on the horizon in early 2025.
Aside from inflation, the BoJ is also considering the yen’s performance in its rate policy decisions. The yen has been depreciating since early October, although it has shown some resilience this week. Pressure is mounting on the BoJ to increase rates to support the yen, but a quarter-point rate hike may not have a significant impact.
If the yen continues to weaken and approaches the 155-160 level, there is a possibility that the Ministry of Finance and the BoJ may intervene to stabilize the currency. While currency intervention is a last resort, Tokyo has taken such actions in the past when the yen depreciated rapidly.
USD/JPY Technical Analysis
In terms of technical analysis, the USD/JPY pair has broken below several support levels today. Currently, there is weak support at 149.89, with the next support level closely following at 149.63. On the upside, resistance levels are seen at 152.05 and 152.54.
Overall, the yen’s recent strength can be attributed to the positive inflation data and the uncertainty surrounding the BoJ’s rate decisions. Investors will be closely monitoring upcoming announcements from the central bank to gauge the future direction of the yen.
