Japanese yen gains ground, US inflation looms

The Japanese yen is in positive territory on Tuesday. In the North American session, USD/JPY is trading at 142.63 at the time of writing, down 0.37% on the day.

Will BoJ stay on the sidelines until 2025?

Bank of Japan meetings used to be sleeper events but that has changed now that the central bank has exited its negative rate policy and is likely to continue tightening. The BoJ likes to keeps its cards concealed and investors are always on the prowl for some hint as to the BoJ’s rate plans.

The BoJ has signaled that it will tighten rates but it has been a guessing game as to when the central bank might make a move. The BoJ meets next week but is unlikely to raise rates, especially with the recent volatility in the Japanese equity markets. The BoJ raised rates in early August and the Nikkei 225 responded with record losses. That should be enough of a reason to dissuade the BoJ from raising rates until December or January. BoJ officials have stated that they won’t hike rates while financial markets are unstable.

The Federal Reserve meets on Sept. 18, two days before the BoJ meeting. If the Fed rate cut restores stability to the global equity markets, it would support the case for the BoJ to go ahead and raise rates several months down the road.

The Fed is all but certain to deliver a rate hike next week, but by how much? After Friday’s lukewarm nonfarm payrolls report, the odds of a 50-basis point cut shot up to 59%, up from 43% before the release, according to CME’s FedWatch. That has plunged to just 27% on Tuesday, ahead of tomorrow’s CPI report. If CPI is higher or lower than the expected 2.6% gain, market rate pricing could take another wild swing.

USD/JPY Technical

• USD/JPY is testing support at 142.97. Below, there is support at 142.15
• There is resistance at 144.00 and 144.82

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