The Bank of Japan's interest rate hike signal VS the Federal Reserve's interest rate cut frenzy, the trends of the US and Japan await CPI guidance!
2025-09-11 14:09:38
The USD/JPY exchange rate maintained a slight upward trend for the second consecutive day on Thursday (September 11), with mixed fundamental signals. Domestic political uncertainty may provide further reason for the Bank of Japan (BoJ) to postpone an interest rate hike. This, coupled with generally positive market risk appetite, has weighed on the safe-haven yen, driving the USD/JPY exchange rate higher during Thursday's Asian and European trading sessions. On the other hand, growing market expectations of more aggressive easing by the Federal Reserve have hindered the dollar's ability to attract substantial buying, seemingly limiting its upside potential against the yen.
However, Japan's producer price index (PPI) rose slightly in August, and second-quarter GDP data was revised upward. Household spending and real wage growth all support an impending Bank of Japan rate hike. This represents a significant divergence from market expectations for a dovish Federal Reserve. This policy divergence should continue to benefit the low-yielding yen and suggests that the path of least resistance for USD/JPY remains to the downside. However, the market appears reluctant to aggressively position itself, opting instead to await US inflation data due later Thursday.
Yen bulls remain on the sidelines despite strong fundamental support
The Bank of Japan reported on Thursday that Japan's producer price index (PPI) rose 2.7% year-on-year in August, a slight acceleration from the previous reading of 2.6%. The monthly rate fell by 0.2%, reversing the 0.2% increase in July.
Other recent data showed household spending picking up, with real wages turning positive for the first time in seven months. This kept the possibility of a Bank of Japan rate hike before the end of the year alive, supporting the yen's continued gains in Asian trading on Thursday.
In stark contrast, an unexpected decline in U.S. inflation has reinforced market expectations of a rate cut at the Federal Reserve's policy meeting next week. The U.S. Bureau of Labor Statistics reported on Wednesday that the annual rate of producer price inflation fell to 2.6% in August from 3.3% in July.
Details of the report showed that the core PPI, which excludes food and energy prices, rose 2.8% year-on-year, a significant slowdown from 3.7% in July and well below market expectations of 3.5%. The data boosted market expectations that the Federal Reserve will increase its easing efforts.
Markets are now almost fully pricing in three rate cuts for the rest of the year and the possibility of a smaller 50 basis point cut at the September 16-17 meeting, which has prevented the dollar from extending this week's rebound from its low since July 28.
However, the market seems reluctant to make aggressive moves and is choosing to wait for the US CPI report to be released later. This key inflation data will dominate the US dollar trend and provide important directional guidance for the USD/JPY exchange rate.
USD/JPY needs to effectively fall below 147.00 to confirm a substantial downward trend
USD/JPY failed to extend this week’s rebound from near the August monthly swing low, and oscillators on the daily chart showed negative divergence, which favors the bears.
On the downside, a follow-through sell-off and a break below the 147.00 level would confirm the bearish outlook, opening the way for a test of the 146.30-146.20 support zone. A sustained move lower and a break below the 146.00 psychological level could push the spot price towards the intermediate support level of 145.35 and ultimately the important psychological level of 145.00.
On the upside, any rebound attempt is more likely to encounter renewed selling pressure in the 147.75-147.80 area, which will limit USD/JPY's upside around the 148.00 round number. However, a sustained break above this resistance level could trigger short-covering, challenging the key 200-day simple moving average (SMA) (148.70), currently located around the 148.75 area. Subsequently, the 149.00 level and the monthly swing high around the 149.15 area need to be watched – a decisive break above this resistance range could shift market sentiment to the bulls.
(USD/JPY daily chart, source: Yihuitong)
At 14:09 Beijing time, the US dollar was trading at 147.57/58 against the Japanese yen.
However, Japan's producer price index (PPI) rose slightly in August, and second-quarter GDP data was revised upward. Household spending and real wage growth all support an impending Bank of Japan rate hike. This represents a significant divergence from market expectations for a dovish Federal Reserve. This policy divergence should continue to benefit the low-yielding yen and suggests that the path of least resistance for USD/JPY remains to the downside. However, the market appears reluctant to aggressively position itself, opting instead to await US inflation data due later Thursday.
Yen bulls remain on the sidelines despite strong fundamental support
The Bank of Japan reported on Thursday that Japan's producer price index (PPI) rose 2.7% year-on-year in August, a slight acceleration from the previous reading of 2.6%. The monthly rate fell by 0.2%, reversing the 0.2% increase in July.
Other recent data showed household spending picking up, with real wages turning positive for the first time in seven months. This kept the possibility of a Bank of Japan rate hike before the end of the year alive, supporting the yen's continued gains in Asian trading on Thursday.
In stark contrast, an unexpected decline in U.S. inflation has reinforced market expectations of a rate cut at the Federal Reserve's policy meeting next week. The U.S. Bureau of Labor Statistics reported on Wednesday that the annual rate of producer price inflation fell to 2.6% in August from 3.3% in July.
Details of the report showed that the core PPI, which excludes food and energy prices, rose 2.8% year-on-year, a significant slowdown from 3.7% in July and well below market expectations of 3.5%. The data boosted market expectations that the Federal Reserve will increase its easing efforts.
Markets are now almost fully pricing in three rate cuts for the rest of the year and the possibility of a smaller 50 basis point cut at the September 16-17 meeting, which has prevented the dollar from extending this week's rebound from its low since July 28.
However, the market seems reluctant to make aggressive moves and is choosing to wait for the US CPI report to be released later. This key inflation data will dominate the US dollar trend and provide important directional guidance for the USD/JPY exchange rate.
USD/JPY needs to effectively fall below 147.00 to confirm a substantial downward trend
USD/JPY failed to extend this week’s rebound from near the August monthly swing low, and oscillators on the daily chart showed negative divergence, which favors the bears.
On the downside, a follow-through sell-off and a break below the 147.00 level would confirm the bearish outlook, opening the way for a test of the 146.30-146.20 support zone. A sustained move lower and a break below the 146.00 psychological level could push the spot price towards the intermediate support level of 145.35 and ultimately the important psychological level of 145.00.
On the upside, any rebound attempt is more likely to encounter renewed selling pressure in the 147.75-147.80 area, which will limit USD/JPY's upside around the 148.00 round number. However, a sustained break above this resistance level could trigger short-covering, challenging the key 200-day simple moving average (SMA) (148.70), currently located around the 148.75 area. Subsequently, the 149.00 level and the monthly swing high around the 149.15 area need to be watched – a decisive break above this resistance range could shift market sentiment to the bulls.
(USD/JPY daily chart, source: Yihuitong)
At 14:09 Beijing time, the US dollar was trading at 147.57/58 against the Japanese yen.
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