USD/JPY Currency Pair Moves Cautiously As Focus Shifts To US Inflation Figures
The USD/JPY currency pair continued its recently well-established downtrend and dropped to its lowest level since early October, around mid-146.00s during the first half of trading action on Tuesday (3/11). Concerns about US President Donald Trump’s tariffs and a potential global trade war continued to weigh on investor sentiment. This was evident from a generally weaker tone around the equity markets, which, coupled with expectations of an aggressive Bank of Japan (BOJ), supported the JPY as a safe-haven. Moreover, the underlying bearish tone surrounding the US Dollar (USD) exerted additional downward pressure on the currency pair.
Traders now seem convinced that the BOJ will raise interest rates again amid broadening inflation in Japan and expect the strong wage gains seen last year to continue this year. In fact, BOJ Deputy Governor Shinichi Uchida hinted last week that the central bank is likely to raise interest rates at a pace in line with the dominant view among market participants and economists. Additionally, sluggish demand at five-year debt auctions, amid views that interest rates will continue to rise, lifted the 10-year Japanese government bond (JGB) yield to its highest since October 2008 earlier this week.
This, to a larger extent, offset a downward revision of Japan’s GDP figures, which showed that economic growth slowed to 2.2% on an annualized basis in the fourth quarter. This was lower than the initial estimate of a 2.8% increase, although this did little or nothing to boost JPY demand. On the other hand, the USD languished near its lowest level since November amid concerns about a tariff-driven slowdown in the US, which may force the Federal Reserve (Fed) to lower borrowing costs several times this year. This kept US Treasury yields depressed and the resulting narrowing of the US-Japan interest rate differential benefited JPY investors.
However, traders may prefer to wait for the release of the latest US inflation figures later this week before placing fresh directional bets. The US Consumer Price Index (CPI) and Producer Price Index (PPI) are due on Wednesday and Thursday, respectively. The key data will play a key role in influencing expectations about the Fed’s rate cut path, which in turn should drive the USD demand and provide some meaningful impetus to the USD/JPY pair. Meanwhile, the US Job Openings and Labor Turnover Survey (JOLTS) might produce short-term opportunities later during the North-American session on Tuesday.
Source: FXStreet
