Japanese Yen edges lower as US CPI inflation data looms

• USD/JPY trades with mild gains around 157.95 in Tuesday’s early European session.
• The BoJ summary suggested a chance of a December interest rate hike.
• US October CPI inflation data will be closely watched on Tuesday.

The USD/JPY pair posts modest gains near 157.95 during the early European trading hours on Tuesday. A hawkish stance from the Bank of Japan (BoJ) might cap the upside for the pair. Traders remain on high alert for currency intervention from Japanese authorities. The US Consumer Price Index (CPI) inflation data will be in the spotlight later on Tuesday.

According to the summary for the October policy meeting released Tuesday, the BoJ board members see a near-term interest rate hike as necessary, signaling there’s a good chance for a December move. “The Bank should decide on the next policy interest rate hike when it is possible without becoming overly cautious,” one of the nine board members said.

Currency intervention from Japanese officials could lift the Japanese Yen (JPY) against the US Dollar (USD) in the near term. Quarterly figures released by the Ministry of Finance (MOF) on Monday showed that Japan conducted currency market interventions on three days between July 30 and August 3.

The largest intervention took place on July 30, totaling 7.98 trillion JPY ($50.36 billion), exceeding the previous record of 6.28 trillion JPY set on April 30.

Traders will keep an eye on the US inflation data on Tuesday. Economists expect the headline CPI to show a rise of 0.3% MoM in October, while the core CPI is projected to show an increase of 0.2%.

Any signs of hotter inflation in the US could reinforce the Federal Reserve (Fed) to raise the interest rate in December and boost the Greenback. However, the report will not include an annual reading for October CPI because of the government shutdown a year ago.

Yen support builds as BoJ tightening hopes and JGB dynamics bolster JPY

Analysts at Rabobank highlight that the JPY has been a standout performer this year, noting that “the JPY is the second best performing G10 currency in the half year to date.” They acknowledge that “this strong ranking has been obtained with the support of sizeable FX intervention over 3 days during the summer, which included joint support with the US Treasury,” but point out that the currency has also gained on its own merits more recently. In particular, they observe that “the JPY has managed to outperform the USD on a 1-month view with the market displaying a clear reluctance to push USD/JPY above the 158.70 area which coincides with the 200-day sma.”

On the policy front, Rabobank notes that “while the sell-off in the Nikkei 225 at the end of last week depressed market expectations regarding the chances of a December BoJ rate hike, the strength of September wage data supports the potential for further policy tightening both next month and into next year.” Against this backdrop, they argue that “in our view, this suggests USD/JPY can edge lower to the 155.00 area on a 3-month view.” They add that “another component of any JPY turnaround would likely be a more robust tone in the JGB market,” which “could contribute to a more supportive backdrop for the JPY in the months ahead.”

From a flow and fiscal perspective, Rabobank underscores that “Japan’s primary deficit is better than the G7 average and there is speculation that Japan’s huge asset managers may be tempted to repatriate to take advantage of higher JGB yields. This would have positive implications for the JPY.” Looking ahead, they flag that “Q3 GDP data and October national CPI inflation, both due next week, will be of interest to BoJ watchers,” and conclude that “we remain cautiously optimistic on the medium-term outlook for the JPY.”

Daly leans more hawkish as inflation stays top priority despite solid jobs data

Fed’s Daly delivered a more hawkish-than-usual tone, with an FXS Speechtracker score of 8/10 versus a historical average of 6.4/10, underscoring that inflation “has to be number 1 priority” even as the job report is described as good news and wage growth “isn’t booming.” The emphasis that real wages are falling, inflation has been high for too long, and policy “will have to” be tightened further—while keeping timing data-dependent—signals a bias toward additional rate hikes, supported by confidence in a strong labor market and only limited concern about growth.

The FXS Fed Sentiment Index rose by 0.95 points to 143.10, reinforcing that the overall Fed communication backdrop remains firmly in hawkish territory well above the neutral 100 line. Combined with the elevated FXS Speechtracker score, Daly’s remarks add incremental upside pressure to expectations for further tightening, a backdrop typically supportive of the Dollar and yields.

Technical Analysis: USD/JPY remains capped below the key 100-day SMA

In the daily chart, USD/JPY keeps a slightly bearish near-term bias as it holds below the 100-day Simple Moving Average (SMA) while clinging just above the 20-day Bollinger middle band support. The Bollinger bands have narrowed with price hovering near the midline, and the Relative Strength Index (RSI) around 51 suggests neutral momentum, hinting that recent downside pressure is consolidating rather than accelerating for now.

On the topside, immediate resistance is seen at the 20-day Bollinger upper band near 158.90, with the 100-day SMA at 159.00 forming a tight cap that would need to be reclaimed to ease the current corrective tone. On the downside, initial support sits at the Bollinger middle band around 157.95, followed by the lower band near 156.95; a daily close below this lower boundary would open the door for a deeper pullback within the broader range.

(The technical analysis of this story was written with the help of an AI tool. Know more.)