USD/JPY Rises Alongside Inflation

09/20/2022

1 minute read

2022.09.20 10:16

MarketPulse

The Japanese yen is in negative territory, as trades at 143.67, up 0.31%.

Can Fed Or BoJ Wake Up Sleepy Yen?

There is plenty of anticipation, as the Federal Reserve holds a on Wednesday, followed by the the next day. The yen has shown limited movement, oblivious to all the fuss. Is this the calm before the storm? It could very well be, especially with the Fed poised to press hard on the rate pedal. The markets have priced in a 75bp increase, with a 20% chance of a super-size 100bp move (times have clearly changed – it wasn’t very long ago that a 50bp move garnered the label “supersize”). The wobbly Japanese yen hasn’t posted a winning week since early August and fell to 144.99 earlier this month, its lowest level since 1998.

The yen’s slide has contributed to rising inflation, which accelerated in August. rose to 2.8% YoY in August, up from 2.4% in July and the highest reading since 1991. Headline rose to 3.0% YoY, up from 2.4% in July. Both readings were higher than the consensus.

The sharp depreciation of the yen will no doubt be high on the BoJ’s meeting agenda, but I’m skeptical that Bank members will take any action, aside from some strong rhetoric expressing their concern and dismay about the yen’s woes. Governor Kuroda has not given any signals that he plans to change the BoJ’s ultra-accommodative policy, even in the face of rising inflation. Kuroda says he will not raise rates until strong wage growth shows that inflation is sustainable.

The yen has borne the brunt of the BoJ’s loose policy, which has kept a tight lid on Japanese government yields while are heading higher, thanks to the Fed’s continued tightening. This has left the yen at the mercy of the US/Japan rate differential, and a 75 or 100bp hike from the Fed will only add to the yen’s misery.