The USD/JPY pair rebounded from its nine-month low following the release of US inflation data, which suggests a more measured approach to interest rate cuts by the Federal Reserve (Fed). Additionally, comments from a Bank of Japan (BoJ) official hinted at a potential interest rate hike, supporting the Japanese Yen (JPY).
USD/JPY US Inflation Data
The US Consumer Price Index (CPI) for August came in slightly below expectations, but core CPI rose more than anticipated. This indicates that while overall inflation is declining, there are still areas of concern. The data suggests that the Fed may opt for a smaller rate cut at its upcoming meeting.
USD/JPY Fed Rate Expectations
The probability of a 50 basis points (bps) rate cut at the September 17-18 Fed meeting has decreased significantly following the inflation data. Markets are now more confident in a 25 bps cut.
BoJ Rate Hike Hints
Comments from BoJ Board member Junko Nakagawa have suggested that an interest rate hike may be closer than previously thought. This, along with stronger-than-expected Japanese Labor Cash earnings, supports the case for further normalization of BoJ policy.
USD/JPY Technical Analysis
The USD/JPY pair has rebounded from its recent low, but the overall trend remains cautious. A break above the 141.50 level could signal a potential uptrend, while a break below the 140.00 level could indicate a continuation of the downtrend.
