USD/JPY rebounds post inflation data

The USD/JPY pair surged to 142.60 on Friday, boosted by the Japanese Yen’s expected 2.5% increase in the National Consumer Price Index (CPI). However, the Bank of Japan remains uncertain about the future of Japanese inflation, as it remains firmly entrenched in hyper-easy monetary policy with negative interest rates, and the US dollar struggles to recover from losses and the weakening of the Yen.

The US Dollar declined once more on Friday after the US PCE data declined faster than expected, seeing a resurgence in rate cut expectations from the markets. The Core US PCE Price Index for the year through November softened to 3.2%, below the market forecast of 3.3% and easing back further from the previous print of 3.4%.

Because US inflation is dropping, investor prospects of further rate reduction in 2024 have revived the US dollar. A rate decrease as early as March of next year is being bet on by some too enthusiastic participants, who are pricing in bets of 160 basis points in cumulative rate cuts. Despite reaching a new high of 142.66, the USD/JPY pair is still bearish due to the charts’ inevitable lower-highs pattern.