Japanese yen knocking on 152 doorstep

• Yen close to 33-year low
• US releases inflation report on Tuesday

The Japanese yen is showing limited movement on Monday. In the North American session, USD/JPY is trading at 151.56, up 0.02%. Earlier, in the day, the yen dropped to a low of 151.91, its lowest level since October 2022.

Will the Bank of Japan intervene?

The Bank of Japan isn’t known for its transparency and previous currency interventions caught the markets by surprise and briefly sent the yen sharply higher. The BoJ can’t be pleased with the recent slide of the yen, which dropped 1.45% against the US dollar just last week. Earlier today, the yen came within a whisker of the 151.96 level, which is the yen’s lowest level since 1990. The BoJ has resorted to verbal intervention, but this has been ineffective. If the yen breaks past 152, the threat of intervention by Tokyo will become that much more likely.

The US releases the October inflation report on Wednesday, and a hotter-than-expected print would likely give the US dollar a boost. Headline inflation is expected to ease to 3.3% y/y, down from 3.7%. If CPI misses expectations, I would expect some volatility from the US dollar. The Fed will be keeping a close eye on core CPI, which is considered a better gauge of inflation trends. The core rate is expected to inch lower to 4.0%, down from 4.1% in September.  If CPI is lower than expected, that could weaken the dollar, as pressure will rise on the Fed to trim rates. Conversely, a strong CPI reading will dampen rate cut expectations and the US dollar could gain ground.

The markets have priced in rate cuts in mid-2024, but Jerome Powell and his colleagues continue to push back against speculation of rate cuts, especially with inflation still above the 2% target. Powell said on Thursday that he would not hesitate to raise rates if needed in order to contain inflation and stated that he was “not confident” that inflation would return to 2% under the current policy.

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USD/JPY Technical

• USD/JPY tested resistance at 151.68 earlier. Above, there is resistance at 152.31
• There is support at 150.82 and 150.05

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