USD/JPY heads closer to 150 after US inflation report

The Japanese yen is slightly lower on Friday. In the European session, USD/JPY is trading at 149.63, down 0.12%.

The US inflation report for September was unchanged at 3.7% y/y, but this was higher than the market estimate of 3.6% y/y and the market reaction sent the US dollar higher against all the major currencies. USD/JPY rose 0.43% on Thursday, hitting a high of 149.82. The yen has recovered slightly but the critical 150 line remains within striking distance.

Will the yen breach 150?

Earlier in the month, the yen spiked higher after breaching 150 and the markets were abuzz with speculation that the Ministry of Finance (MOF) had intervened to prop up the yen. The MoF kept the markets guessing, as it likes to do, but the central bank’s money market data indicated that it likely did not intervene. Still, the 150 line remains a psychologically important level and another breach could trigger volatility from the Japanese currency.

The markets responded to the higher-than-expected US inflation release, as expectations increased that the Fed would be forced to continue its “higher for longer” rate policy and could even raise rates one final time before the end of the year. Overshadowed by all the talk about the hot CPI was the fact that the core rate dropped from 4.3% to 4.1%, matching expectations. This should encourage the Fed, which pays more attention to the core rate, as it is considered a better gauge of inflation trends.

US unemployment claims pointed to a resilient labor market that has cracks but refuses to break. For the week ending October 7^th, unemployment claims were unchanged at 209,000, below the estimate of 210,000. This is further evidence that the labour market remains very tight, which is complicating the Fed’s efforts to bring inflation back down to the 2% target.

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USD/JPY Technical

• 150.21 and 151.13 are the next resistance lines
• 149.23 and 148.31 are providing support

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