USD/JPY Slumps as BoJ Rate Hike Expectations Send Yen Soaring
The US Dollar (USD) failed to sustain its initial rally against the Japanese Yen (JPY), following the release of US inflation data. The USD/JPY pair dipped near 153.70 on Friday, extending its decline from levels around the mid-155s earlier in the week.
Although the Consumer Price Index (CPI) remained at 3.4% year-on-year in August, unchanged from July and matching market expectations, the initial Dollar rally quickly faded as strong Yen demand pushed the pair back toward its lower end of its recent trading range.
The core CPI measure, which excludes volatile food and energy prices, increased 0.3% month-on-month, exceeding economists' 0.2% forecast. However, annual core inflation eased to 2.4% from 2.5%, limiting the broader impact of the stronger monthly reading.
The market's anticipation of a potential 25 basis point rate hike by the Bank of Japan next week is driving expectations for further Japanese monetary tightening, which is favoring the Yen. Other Yen crosses are also weakening, reinforcing the currency's broad-based strength.