USD/JPY slips on soft US inflation

• US dollar slips after inflation softer than expected
• Japanese GDP expected to decline

The Japanese yen has rebounded on Tuesday with strong gains. In the North American session, USD/JPY is trading at 150.70, down 0.67%.

The yen has snapped a nasty six-day losing streak which saw the currency lose 1.5%. The US dollar is broadly lower today after the October inflation report was weaker than expected.

US inflation weaker than expected

US inflation was softer than expected in October. Headline CPI eased to 3.2% in October, down from 3.7% in September and August and lower than the market consensus of 3.3%. Much of the downswing can be attributed to lower gasoline prices. On a monthly basis, headline CPI was unchanged, compared to a 0.4% gain in September and a market consensus of 0.1%.

The core rate, which excludes food and energy prices, showed a more moderate decline. Core CPI fell from 4.1% to 4.0%, shy of the market consensus of 4.1%. Monthly, core CPI dropped from 0.3% to 0.2%, below the market consensus of 0.3%.

The markets have responded to the soft inflation print by repricing in a pause in December at 94%, compared to 85% a day earlier.

Japan’s GDP expected to contract

Japan’s GDP is expected to have contracted in the third quarter, with a consensus of -0.4% y/y. This would be a huge downturn from the 4.8% gain in the second quarter and could have significant ramifications on monetary policy.

If the economy experienced negative growth as expected, the Bank of Japan will find support for its argument that the economy is too fragile to exit negative interest rates. There has been growing speculation that the central bank will tighten policy in the near term due to persistently high inflation and signs of wage growth. A weak GDP print will provide the BoJ with a reason to continue its ultra-loose policy until there is evidence that growth is strengthening.

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USD/JPY Technical

• USD/JPY pushed below support at 151.61 and is testing support at 150.82
• There is support at 150.05 and 149.29

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