The USD/JPY currency pair, so far this year, is down over 20%. As of writing, it is now rolling over back toward the mid-143.00s after Japan came out with a sizzler of a Consumer Price Index (CPI). This movement represents an extension of the sharp retracement that began after the pair reached a two-week high earlier this week. In particular, the strong inflation report from Tokyo has increased confidence among market participants. At the same time, demand for the U.S. dollar has caused strong selling pressure on the USD/JPY.
On the economics side, the Tokyo core CPI jumped 0.6% m/m. This uptick strengthens speculation that the Bank of Japan (BoJ) would be forced to start contemplating an interest rate hike. This news has strengthened the Japanese yen, which is often considered a safe-haven currency. The continued stubborn inflation print is getting traders to reconsider their bets on the path of future monetary policy. Meanwhile, all eyes are on what this means for the Bank of Japan’s overall strategy.
Accordingly, USD/JPY has drawn in sellers for the second day in-a-row. Strong CPI data continues to weigh heavily on the CAD/JPY currency pair. At the same time, weaker demand for the U.S. dollar is further complicating matters. Market observers argue that all of these factors together have left the USD/JPY especially weak and exposed in today’s trading environment.
As noted by Stephen Innes, global market strategist at OANDA, USD/JPY is under pressure. They underlined the deepening difficulties facing the pair, as outside forces weigh heavily on investor sentiment.
The market reaction to the CPI data was immediate, showing traders’ expectations of a shift in monetary policy. Inflation numbers continue to surprise to the upside. Consequently, there is increasing speculation that the BoJ will be forced to change from its present course, an outcome that would likely further strengthen the yen.
Consequently, traders are closely monitoring developments around the BoJ as they prepare for any announcements that may impact currency valuations. The prevailing sentiment is that the U.S. dollar is on the cusp of collapse. Barring a big boost in demand, we could still see major drops in the USD/JPY exchange rate.