If the US CPI unexpectedly rises in December, the US dollar will regain upward pressure against the Japanese yen
Yesterday Tuesday (January 14th), in the European market, the USD/JPY rose sharply to around 158.00. Due to the recovery in demand for risk sensitive assets, the safe haven appeal of the Japanese yen has weakened, and assets have steadily risen.
Despite the US dollar reaching a new high in over two years, the USD/JPY has performed strongly in the past three trading days. But the yen seems to be losing its heat, with investors focusing on the US December CPI data to be released on Wednesday.
Analysts from Bank of America predict that "if the US CPI unexpectedly rises this week, the upward pressure on the spot exchange rate of the US dollar against the Japanese yen may recover, as the currency is highly sensitive to unexpected CPI increases
According to market expectations, the overall annual inflation is expected to be 2.8%, higher than the 2.7% in November. During the same period, the core CPI (excluding volatile food and energy prices) steadily increased by 3.3%.
The signs of sustained price pressure will further suppress the dovish bets of the Federal Reserve. Recently, the dovish outlook of the Federal Reserve has significantly weakened after the unexpectedly strong December non farm payroll data in the United States.
On the domestic front in Japan, the yen will be influenced by market speculation that the Bank of Japan may take interest rate action at its policy meeting on January 24th. Vice Governor of the Bank of Japan, Ryo Shimino, stated on Tuesday that the Board of Directors will discuss whether to "raise interest rates next week and make a decision" based on the economic and price forecasts presented in the quarterly outlook report.
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