USD/JPY is trading near 158.35 as traders wait for the September U.S. CPI report. Headline inflation is expected to accelerate, while monthly core inflation is expected to ease. The result could shape expectations for further rate hikes.
Trading in USD/JPY stayed subdued ahead of the U.S. Consumer Price Index release, with moves in both directions struggling to gain traction. The key question is whether U.S. inflation is strong enough to reinforce expectations for further rate hikes.
USD/JPY stalls between 158.11 and 158.51
The pair rose to 158.51 during the Tokyo morning before pulling back to 158.11. It recovered to around 158.35 early in the London session but has yet to establish a clear direction.
Buyers have appeared on dips, but concerns about official warnings over yen weakness are keeping traders cautious about chasing the pair higher.
If the pair breaks above today's high of 158.51 after the release and holds there, a move toward 159.00 could come into focus. A break below today's low of 158.11 would instead raise the risk of a pullback below 158.00 and into the upper 157s.
What the CPI report is expected to show
The September report is due at 21:30 Japan time. Headline CPI is expected at 3.6% year over year, versus 3.4% previously, and at 0.6% month over month, versus 0.4%. Core CPI is expected at 2.5% year over year, versus 2.4%, and at 0.2% month over month, versus 0.3%.
The headline measures are expected to accelerate, partly reflecting higher oil prices, while monthly core inflation is expected to ease. If core inflation also exceeds expectations, higher U.S. yields and dollar demand could follow as markets price in a greater chance of additional rate hikes. A softer-than-expected report could reduce the urgency for further tightening and weigh on the dollar.
Yields and the Beige Book will test the move
Whether U.S. yields move in the same direction will help gauge how durable any exchange-rate move proves. If the dollar rises but yields fail to move higher, the source cautions against assuming the advance will last.
The Federal Reserve's Beige Book is due at 03:00 Japan time on October 15, and could reinforce or alter the policy outlook that follows the CPI report.
Source: MQL5: Traders' Blogs
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