Japanese Yen Strengthens as Dollar's Inflation Bounce Fades

3:22 PM ETDeveloping

Business Desk

In Short: The Japanese Yen has risen against the US Dollar as inflation concerns in the US have diminished, with markets expecting a Bank of Japan rate hike next week.

USD/JPY is trading around 153.70 on Friday, down for the day after briefly spiking above 154.50 following the US inflation release, according to reports from FXStreet.

The combination of the Bank of Japan (BoJ) tightening its stance and the Dollar's inflation-day support fading is tilting the balance toward the Yen, keeping USD/JPY under pressure around the low-153s.

Markets see the central bank raising interest rates next week, with a 25-basis-point hike to 1.25% on the table, a move that would lift Japanese borrowing costs to their highest level in more than three decades.

The Relative Strength Index (RSI) at 29.35 sits just inside oversold territory, hinting that downside momentum is stretched but not yet reversed, so bounces are likely to be treated as corrective while the pair remains under these key moving-average barriers.

What's still developing

The pair erased that move within hours as Yen strength overwhelmed the Dollar's knee-jerk bounce, leaving it back toward the lower end of its recent range following this week's sharp slide from the mid-155s.
The US Dollar (USD) climbed at first, helped by the firmer monthly core figure, but the move lost momentum quickly against the Japanese Yen (JPY), which has been among the strongest currencies this week.
USD/JPY is sitting at six-month lows near 153.50 in the Asian session on Tuesday, as Japan's upbeat wage growth data and Q2 GDP revision cement bets on a BoJ rate hike next week and continue to boost the Japanese Yen.
The index currently trades around the 98.80 region, down 0.10% for the day, though it manages to hold above a three-month trough, touched in August, as traders await this week's US inflation figures.
Meanwhile, the better-than-expected US Nonfarm Payrolls (NFP) report, released last Friday, increased the chances of a Fed rate hike at the September 15-16 meeting amid inflation risks stemming from elevated energy prices.

Sources

Fxstreetlink