Yen Strengthens as Soft US Inflation Data Fuels Rate Cut Bets

The Japanese yen strengthened against the US dollar on Tuesday, following softer-than-expected US producer price index (PPI) data for December. The PPI rose only 0.1% in December, below the 0.2% forecast, while the annual rate eased to 2.5% from 2.7% in November.

This cooling in wholesale inflation suggests that price pressures are moderating across the economy, which could influence the Federal Reserve's policy path. The data adds to a series of recent points, including a slowdown in consumer price inflation, that have led markets to price in a higher probability of a rate cut in the first half of the year.

The likelihood of a 25-basis-point cut at the March meeting rose to 55% following the PPI release, up from 48% a day earlier. A less hawkish Fed typically reduces the appeal of the dollar, as lower interest rates diminish the yield advantage of US assets.