USD/JPY trades lower around 149.70 during the European session on Friday, snapping a three-day winning streak that began on Tuesday. Despite reaching weekly highs, the USD/JPY pair has experienced a pullback, attributed to the retreat in the US Dollar (USD). The US Dollar Index (DXY) trades lower around 106.30 by the press time, retreating from the weekly highs. The US Dollar (USD) weakens due to the downbeat US Treasury yields, with the 10-year US bond yield standing at 4.64%, down by 1.23% at the time of writing. The economic landscape in the United States has been dynamic, which could limit the losses of the US Dollar (USD). The Consumer Price Index (CPI) exceeded expectations in September, with an annual expansion of 3.7%, slightly surpassing the estimated 3.6%.
Additionally, the modest increase in Initial Jobless Claims for the week ending on October 6, slightly below the forecasted 210K at 209K, suggests a nuanced trend indicating a mild easing. This positive US economic data has reignited a hawkish sentiment regarding the Federal Reserve’s (Fed) interest rate trajectory, which could support underpinning the USD/JPY pair. The upbeat indicators have introduced complexity to the ongoing narrative, leading to speculation about the Fed’s potential response.
Investors are anticipated to closely monitor the release of the US Michigan Consumer Sentiment Index on Friday. This index serves as a crucial gauge of consumer confidence, providing insights into the broader economic sentiment. The ongoing analysis of these indicators is likely to influence trading decisions in the USD/JPY pair. The Japanese Yen (JPY) experienced weakness due to the Bank of Japan’s (BoJ) continuous adherence to an ultra-easy monetary policy. BoJ board member Asahi Noguchi has drawn attention on Thursday by expressing a lack of optimism about the acceleration in wage growth.
Noguchi attributes inflation to import price hikes, including currency factors, and emphasizes that there is still a considerable distance to achieving the 2% inflation target. These insights from a BoJ official contribute to the ongoing narrative surrounding the Japanese Yen and the central bank’s monetary policy stance. According to S&P Global’s assessment of the Japanese economy and monetary policy, the rating agency anticipates that policy interest rates in Japan could experience an upward trajectory, beginning in 2024.