Data released by Japan's Ministry of Internal Affairs and Communications on Friday showed that Tokyo's consumer price index (CPI) rose to 2.8% year-on-year in October, up from 2.5% in the previous month; the core CPI, excluding fresh food, also rose to 2.8%.

More noteworthy is that core inflation, excluding energy and fresh food, has been above the Bank of Japan's 2% target for three and a half consecutive years. This data reinforces market expectations for further interest rate hikes by the Bank of Japan.

One market economist pointed out: "The continued rise in Tokyo inflation indicates that domestic demand is strengthening, which may force the Bank of Japan to reassess the sustainability of its easing policy."

The Bank of Japan kept interest rates unchanged at its two-day meeting that concluded on Thursday, but two members voted against it. Naoki Tamura and Hajime Takata both advocated raising the policy rate to 0.75%.

Central Bank Governor Kazuo Ueda stated after the meeting that there is currently no set timetable for the next interest rate hike. This statement was interpreted by the market as a "cautiously hawkish" stance, indicating that the central bank is maintaining a balance between price pressures and fiscal expansion.

The market's new focus is on the fiscal policy stance of new Prime Minister Sanae Takaichi. She plans to introduce an aggressive fiscal spending program to support the domestic economic recovery. The market believes that if the fiscal stimulus is expanded, the Bank of Japan may choose to postpone interest rate hikes to avoid policy conflict.

An analyst at an investment firm in Tokyo pointed out: "The parallel expansion of fiscal policy and rising inflation makes monetary policy adjustments more complex, which is limiting the upside potential of the yen."

The Federal Reserve cut interest rates for the second time this week, lowering the range for the federal funds rate to 3.75%-4.00%. However, Chairman Powell emphasized that whether there will be another rate cut in December is "not yet certain."

This led the market to reduce bets on further easing, pushing the dollar index to its highest level since August and driving the dollar to an eight-month high against the yen. However, the US government shutdown has entered its fifth week, and the deadlock in Congress over the appropriations bill has cast a shadow over the economic outlook, thus dampening bullish sentiment towards the dollar.

From a technical chart perspective, USD/JPY has stabilized above 153.30, an area that has transformed from a previous high into support. Daily oscillators remain in positive territory and have not yet entered overbought territory, suggesting continued upward momentum in the short term.

If the price steadily breaks through the 154.80 area, it may further test the psychological level of 155.00. If it falls below 154.00, the support levels are concentrated in the 153.25 to 153.00 psychological range; once this level is breached, it may trigger a deeper pullback, targeting the 152.15-151.50 range.

Technical analysts point out: "As long as the exchange rate holds above the 153.25 support level, the short-term trend remains upward, but a break below this level will trigger a short-term correction."


Editor's Note:

The yen's exchange rate is being constrained by multiple policy signals: Tokyo inflation data provides a basis for interest rate hikes, but fiscal expansion and policy uncertainty are weakening its appreciation momentum. In the short term, the USD/JPY pair may continue to fluctuate within the 153-155 range. A stronger easing signal from the Federal Reserve in December is needed for the yen to potentially experience a phase of rebound.

Overall, the market is currently in a wait-and-see mode, focusing on the correlation between the Bank of Japan's policy guidance before November and the dollar's performance.