Japanese Yen Tanks Against a Roaring US Dollar Post CPI. Will Yen Resume Weakening?

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Japanese Yen, USD/JPY, US Dollar, US CPI, China, AUD/USD – Talking Points

  • The Japanese Yen came under pressure as US CPI pushed rates and USD up
  • APAC equities were mixed with the ASX an underperformer after data
  • Is US Dollar demand enough to drive USD/JPY to resume its uptrend?

The Japanese Yen weakened significantly overnight as the US Dollar climbed on US inflation fall-out. Interest rate markets now have an implied Fed Funds rate above 0.7% for the end of 2022. This was on the back of US CPI hitting 30-year highs with the annual headline print at 6.2% and core at 4.6%.

US yields across the curve went higher with short end rates holding lofty heights above 0.5% while 10 and 30-years pulled back from their highs. G-10 rates followed the US lead, all up to varying degrees.

Higher global yields potentially lead to Yen weakness as Japanese investors chase better returns abroad.

San Francisco Federal Reserve Governor, Mary Daly, was on the wires after the data and re-iterated the central bank stance that inflationary is transitory. It has been described as such by the Fed since March.

While PPI numbers are above CPI, it might be that more inflation is to come down the pipe. Ms Daly described inflation as ‘eye popping’ but that it is all ‘Covid related.’

Australian jobs data underwhelmed markets, coming in at 5.2% unemployed vs 4.8% expected. Employment fell by 46,300 versus a 50,000 add that was anticipated. The participation rate bumped up to 64.7% from 64.5%.

The Australian Dollar continued south on the news and yields softened after large gains in the US session. 3-year AU bonds moved from 0.90% to as high as 1.075% overnight to settle at 1.025% on the close in Sydney. The ASX 200 was down 1.29% at one stage but recovered to be down 0.57% on the close.

Hong Kong and Korean stocks were down a touch, while mainland China and Japanese equities were up a bit. Evergrande remains in the headlines as they continue to make their debt payments at the 11th hour. Crude oil was lower on stronger USD, WTI trading near US$ 81.50.

Looking ahead, there is third tier US data due and a number of ECB speakers will be hitting the wires.

USD/JPY Technical Analysis

USD/JPY has broken up through the short-term 10 and 21-day simple moving averages (SMA) which may suggest that near-term bullish momentum could be evolving.

The previous highs move into view as potential resistance levels at 114.450, 114.701 and the November 2017 peak of 114.735.

On the downside, support might be provided at a previous low of 112.727 or the pivot points at 112.079 and 110.802. The medium and long-term SMAs of 55 and 100-day duration are potential support levels, currently at 111.857 and 111.061 respectively.

USD/JPY CHART

Chart created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter

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