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Japanese Yen Slips on CPI Data but Bigger Storms Might be Brewing. Where to for USD/JPY?

Japanese Yen Slips on CPI Data but Bigger Storms Might be Brewing. Where to for USD/JPY?

Daniel McCarthy, Strategist

Japanese Yen, USD/JPY, US Dollar, BoJ, YCC, CHF/JPY, Crude Oil, WTI - Talking Points

  • USD/JPY continues to tread water after inflation data
  • Mr Yen sees USD/JPY at 120 on the back of further BoJ tightening
  • CHF/JPY and oil markets might be telling us something about USD/JPY
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The Japanese Yen is little flummoxed after today’s CPI numbers unveiled building price pressures for the archipelago nation.

Headline CPI was the highest it’s been for 30-years at 3.8% year-on-year to the end of November. This was below the 3.9% anticipated but above the previous read of 3.7%.

Core inflation came in at 3.7% year-on-year to the end of November which was in line with expectations and above the 3.6% prior.

Former Vice Finance Minister Eisuke Sakakibara was interviewed on Bloomberg television and said that he could see USD/JPY going to 120. He is known as Mr Yen due to the high regard of his stewardship through the Asian crisis of the late 1990’s.

Earlier this year he said that USD/JPY could go to 150. It traded just shy of 152 in October, the highest level since 1990. He thinks that the BoJ could raise the cap on their yield curve control at their January meeting.

To recap, on Tuesday this week, the BoJ changed its yield curve control (YCC) program by targeting a band of +/- 0.50% around zero for Japanese Government Bonds (JGBs) out to 10 years.

They previously targeted +/- 0.25% around zero and USD/JPY collapsed from 137.50 toward 130.50 on the tilt.

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Further tightening of monetary policy by the BoJ may not be what some market participants are anticipating, and a further hawkish stance might come as a surprise. This could see Yen appreciate further, potentially validating Mr Yen’s prediction.

A stronger Yen could contribute in a positive way to the Japanese economy. Imported inflation from a weaker Yen can be undesirable as it dampens already fragile demand. A rising Yen has the potential to unwind this impact.

Additionally, Japan relies heavily on importing energy and as the Yen climbs, this will alleviate household balance sheets to spend elsewhere in the economy. Looking at WTI crude oil priced in Yen as a proxy for this dynamic, the relief becomes apparent.

Elsewhere, CHF/JPY also appears to have potentially rolled over after scaling to a 7-year peak in September. The Swiss Franc has some similar characteristics to the Yen and if this cross rate continues to slide lower, it could be saying something about where investors are seeking a funding currency.

OIL/JPY AND CHF/JPY

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Chart created in TradingView

--- Written by Daniel McCarthy, Strategist for DailyFX.com

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

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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