Will Japanese yen break 115?

The Japanese yen has reversed directions and edged lower on Wednesday. USD/JPY is currently trading at 114.43, down 0.33% on the day.

Yen under pressure

The US dollar pushed the yen within a whisker of the 115 line in the Asian session, rising to 114.97. USD/JPY has since retreated to 114.50, but the 115 line is vulnerable and could be breached during the week.

Inflation continues to be the buzzword for the major central banks, as red-hot inflation is putting pressure on central bankers to tighten policy. This is not the case in Japan, where a weak economy has not generated much inflation, allowing the BOJ to remain in ultra-accommodative mode. On Thursday, Japan releases National CPI for October. The index came in at a paltry 0.1% y/y in September, and the consensus for October is unchanged.

Over in the US, inflation shows no signs of easing, but higher prices didn’t put a damper on consumer spending, as retail sales climbed 1.7% in October, up from 0.7% beforehand. Core retail sales showed an identical gain, up from 0.8%. The surge in inflation is putting pressure on the Fed to do something, and the markets have become sceptical about the Fed’s narrative that inflation is transient. Consumers who are feeling the pinch of across-the-board price increases. Americans often vote with their pocketbook, and that could spell serious trouble for President Biden and the Democrats. Biden’s popularity has taken a hit due to inflation and the White House has asked regulators to look into illegal conduct on the part of oil and gas companies.

The chorus of voices calling on the Fed to accelerate tapering is getting longer. We’ll be hearing from Fed members throughout the week, and the markets will be listening closely, looking for some insights as to what the Fed may be planning with regard to tapering and potential interest rate hikes.

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USD/JPY Technical

• There is resistance at 115.02 and 116.15
•  USD/JPY is testing support at 114.58. This is followed by support at 113.01

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