Japanese Yen: Soft Dollar and BoJ outlook shift near-term tone – Scotiabank

Scotiabank strategists Shaun Osborne and Eric Theoret point out that Japan’s July Consumer Price Index (CPI) and stronger August Purchasing Managers' Index (PMI) data support expectations for Bank of Japan (BoJ) tightening, with about 20 bps of hikes priced in swaps. The resulting JPY strength has produced a modest USD/JPY decline. Technically, they describe the setup as neutral to bearish, with losses below 158.25 seen as opening further downside.

BoJ tightening expectations support Japanese Yen

"Japan’s July CPI rose to 1.9% in the year, in line with expectations, extending the steady pick up in prices seen since February."

"Preliminary August PMI data reports were all stronger than expected as well, indicating firm momentum in services and manufacturing."

"Inflation data added marginally to conviction that the BoJ will tighten next month, with 20bps or hikes reflected in swaps. Price data helped lift the JPY to a 0.4% rise against the soft USD on the day."

"Neutral/bearish—A net loss for the USD on the week may herald some relief for the JPY. USD dips drew firm support last week but that conviction has not been evident this week."

"The near-term mood on the JPY may be shifting, if only slightly. USD losses below 158.25 may signal a bit more weakness ahead."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)