Today's release of US inflation data for September may be the one the markets have been waiting for, since the beginning of the week. In light of these expectations, the situation on the Japanese yen, which has weakened once again to levels not seen in 24 years, seems to be shaping up interestingly, with only a trace left on the USD/JPY chart after the Bank of Japan's latest intervention.
Yen exchange rate
The Japanese yen has weakened towards JPY147 per USD, being close to the levels of August 1998. The recent weakness of the Japanese currency may be due to the statements of the Bank of Japan Governor, who confirmed the maintenance of loose monetary policy in Japan to support the economic recovery. Haruhiko Kuroda added that Japan's economy is still recovering from the pandemic, and that the Bank of Japan's goal is to keep inflation stable in the region of 2 percent. This approach may mean that Japan and the United States may present two very different approaches to monetary policy. In the U.S., interest rates may continue to be raised, while in Japan they may remain unchanged, close to zero.
Source: Conotoxia MT5, USDJPY, MN
Another Bank of Japan intervention after inflation data release?
Japanese Finance Minister Shunichi Suzuki reiterated today that the government is ready to take "decisive" action to counteract the yen's steep decline, but added that the issue is the dynamics of exchange rate movements, not a specific level. As a result, it is the volatility on the USD/JPY pair that may determine interventions, not where the exchange rate of the pair might be . Nevertheless, with today's release of inflation data from the US, volatility could be elevated. This, in turn, could favor the Japanese authorities' decision to intervene. The Japanese intervened in the currency market last month for the first time since 1998, when the yen weakened to levels not seen in 24 years. The intervention, from which there is no trace now, was expected to cost nearly $20 billion, according to Bloomberg data.
US inflation data in focus
According to market consensus, US inflation in September on a m/m basis was expected to rise by 0.2 percent, while core inflation was expected to rise by 0.5 percent. Meanwhile, on an annual basis, price growth was expected to be 8.1 percent for CPI inflation and 6.5 percent for core inflation. It is the latter reading that may be particularly important. While CPI inflation may have peaked at 9.1 percent in June, the peak for core inflation at 6.5 percent may be surpassed today. Publication today at 14:30 GMT+2.
Daniel Kostecki, director of the Polish branch of Conotoxia Ltd. (Cinkciarz.pl investment service)
The above commercial publication does not constitute an investment recommendation or information recommending or suggesting an investment strategy within the meaning of Regulation (EU) No 596/2014 of April 16, 2014. It has been prepared for information purposes and should not constitute the basis for making investment decisions. Neither the author of the study nor Conotoxia Ltd. are responsible for investment decisions made on the basis of the information contained in this publication. Copying or reproducing this work without the written consent of Conotoxia Ltd. is prohibited.
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