Yen Recovers on Inflation
Yen Recovers Against the Dollar as U.S. Inflation Data Tempers Rate Hike Expectations
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Key Points
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August U.S. headline PCE inflation was 3.4% year over year, below the 3.7% forecast, while core PCE was 3.0% versus expectations of 3.3%; July’s headline and core readings were also revised down to 3.4% and 3.0%, respectively.
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The Bank of Japan had raised its policy rate to 1.25% on September 18; swaps implied roughly a 36% chance of another increase on October 30. The Fed’s target range was 3.75%–4.00%, leaving at least a 2.5-percentage-point gap between the policy rates.
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Japan’s August unemployment rate rose to 2.5% from July’s 12-month low, slightly exceeding the 2.4% forecast. The number of unemployed increased by 10,000 to 1.77 million, while employment rose by 30,000 to 68.34 million.
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U.S. private-sector employment increased by 90,000 in September, above the 70,000 forecast, and second-quarter annualized GDP growth was revised up to 2.2% from 1.5%.
The yen jumped on softer U.S. inflation data but gave back most of its gains as stronger employment and growth figures supported the dollar. Trading Economics reported that August U.S. headline PCE inflation came in at 3.4% year-over-year, below the 3.7% forecast, initially pushing October Federal Reserve rate-hike odds down to roughly 35%. However, U.S. private-sector employment rose by 90,000 in September—above the 70,000 forecast—and second-quarter GDP growth was revised up to 2.2%, stabilizing currency markets.
The Bank of Japan's less-hawkish-than-expected signals added to yen pressure, even as markets priced in a 36% chance of another rate increase on October 30. GuruFocus noted that mixed central bank signals have weighed on the Japanese currency. USD/JPY fell briefly below 156.50 but ended just under 157.50, marking its fourth consecutive close above that level.
Weaker Inflation Sparks Brief Yen Rally
August PCE inflation disappointed to the downside, with headline inflation at 3.4% versus the 3.7% forecast and core PCE at 3.0% against 3.3% expectations. TMGM reported that softer inflation pushed October Fed hike odds down to near 35%. The yen spiked sharply on the data, as traders reduced bets on aggressive U.S. rate hikes. FXStreet noted USD/JPY fell below 156.50 in the immediate aftermath.
Strong U.S. Jobs Data Erodes Yen's Gains
U.S. employment strength quickly reversed the yen's brief rally. Private-sector hiring added 90,000 jobs in September, topping the 70,000 forecast. Second-quarter GDP growth was also revised up to 2.2% from 1.5%, signaling economic resilience. These readings suggested the Fed might still move in October despite softer inflation. By session end, USD/JPY had recovered most of its decline and closed just under 157.50.
BoJ Rate Decision Looms Over Currency
The Bank of Japan raised its policy rate to 1.25% on September 18, leaving a 2.5-percentage-point gap between U.S. and Japanese rates. Mitrade reported markets are pricing a 36% chance of another BoJ increase on October 30. The central bank's recent signals were viewed as less hawkish than expected, weighing on the yen. Investors now await both the Fed's October decision and the BoJ's next move to clarify the currency's direction.
Japan's Labor Market Tightens Slightly
Japan's August unemployment rate rose to 2.5% from July's 12-month low of 2.4%, slightly exceeding forecasts. Trading Economics reported the number of unemployed increased by 10,000 to 1.77 million, while employment rose by 30,000 to 68.34 million. The modest uptick in joblessness came as central banks prepared for their next policy decisions, adding uncertainty to yen movements.
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