- USD/JPY extends gains around 151.70 on the higher US Treasury bond yield.
- University of Michigan’s Consumer Sentiment Index dropped, but inflation expectations surged in November.
- The US Consumer Price Index (CPI), Japan’s growth numbers will be in the spotlight this week.
The USD/JPY pair trades in positive territory for the sixth consecutive day during the Asian trading hours on Monday. The uptick of the pair is bolstered by the higher US Treasury bond yield and the hawkish comments from Federal Reserve (Fed) Chair Jerome Powell. The pair currently trades around 151.70, gaining 0.10% on the day.
The Federal Reserve (Fed) reiterated that the central bank will not hesitate to tighten policy further if appropriate to bring inflation down to 2%. While other FOMC members’ views are flexible and open to additional tightening if warranted by the data.
On Friday, the preliminary University of Michigan’s Consumer Sentiment Index for November dropped to 60.4 versus 63.8 prior, below the market consensus of 63.7. The UoM 12-month inflation expectations surges to 4.4% from 4.2%, while the 5-year expectations climbed to 3.2% from 3.0%.
Investors await the US inflation data on Friday for fresh impetus. The stronger-than-estimated data might raise the possibility of Fed rate hikes in the December meeting. This, in turn, might boost the US Dollar (USD) and act as a tailwind for the USD/JPY pair. Fed Funds futures have priced in 14.4% odds of additional rate raising in the December meeting, according to the CME Fedwatch Tool.
On the other hand, a potential FX intervention by the Japanese government might cap the upside of the pair. Last week, the Bank of Japan (BoJ) Governor Kazuo Ueda said that the BoJ would exit the ultra-loose monetary policy with prudence to avoid significant volatility in the bond market. He added that Japan was making moves towards the central bank’s 2% inflation target, with a cycle of rising wages and domestic demand-driven inflation picking up pace.
Market players will keep an eye on the US Consumer Price Index (CPI) for October on Tuesday. On Wednesday, the Japanese Gross Domestic Product (GDP) for the third quarter (Q3) will be released, which is expected to contract 0.1% QoQ from the 1.2% expansion in the previous reading. Also, the US Retail Sales and Producer Price Index (PPI) will be due. Traders will take cues from these figures and find trading opportunities around the USD/JPY pair.