Yen Struggles Despite Soft PPI Data as Fed Hike Bets Reprice

The Japanese Yen has been struggling to gain traction against the US Dollar despite softer-than-expected US Producer Price Index (PPI) data and falling Federal Reserve rate-hike expectations.

According to data from the US Bureau of Labor Statistics, the headline PPI was unchanged in July after falling by 0.1% in June, while the annual rate slowed to 4.7% from 5.5%. Core PPI rose by 0.2% month-on-month, easing from 0.4%, while the yearly rate declined to 4.2% from 4.7%.

The softer inflation data has prompted traders to scale back expectations for an imminent Federal Reserve interest-rate increase, which had already weakened after the July Nonfarm Payrolls report surprised to the downside.

Analysts at MUFG note that market participants are increasingly focused on whether Japan is prepared to re-enter the FX market to shore up the Yen. They argue that, at a minimum, 'Japanese policymakers will be hoping the heightened threat of intervention helps to slow the pace of yen weakness,' even if actual action is delayed.