The Japanese yen has climbed to its strongest level since February, with USD/JPY sliding to 154.17 from a year-to-date high of 163.96. The move comes as traders position ahead of crucial US inflation data and monetary policy decisions from the Federal Reserve and the Bank of Japan.
US inflation expectations are turning hawkish. The Bureau of Labor Statistics is expected to report headline CPI at 3.4% for August, with core CPI at 2.4%. Producer price data already surprised higher, with headline PPI rising to 0.4% month-on-month and annual readings of 5.4% headline and 4.6% core. Meanwhile, average US gasoline prices have climbed to $4.27 per gallon and diesel to $6, adding to concerns that inflation may accelerate further.
Markets are also watching geopolitical risks in the Middle East, where oil prices are rising amid US-Iran tensions and Houthi advances near the Bab el-Mandeb Strait. These supply-side pressures strengthen the case for the Federal Reserve to hike interest rates as soon as next week.
Next week’s Bank of Japan meeting is another key catalyst. Economists are unanimous in expecting a 25-basis-point rate hike, which would narrow the US-Japan rate differential and challenge yen carry trades. However, if the Fed also tightens, the spread may remain wide enough to limit the yen’s upside. Technical analysis shows USD/JPY below the 38.2% Fibonacci retracement and under its 50-day and 100-day EMAs, with a possible move toward the 50% Fibonacci level at 152.
