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The yen currently settled nearly at its weakest level against the dollar in three months in Asian trading on Friday as U.S. bond yields rally, including the economic data release supporting the U.S. rate hike, which sent the dollar to strengthen overnight.   

The Nikkei Stock Average climbed in Tokyo trading on Friday, posting recent gains of 0.5%. Hence, a weaker yen exposes exports to become more price competitive overseas and boosts the value of Japanese company profits earned in a foreign country.       

Subsequently, the U.S. dollar traded at ¥105.20, compared with ¥105.28 during Thursday’s close in New York. The greenback stood session-highs since July 29, hitting ¥105.35 overnight.

Evidently, the dollar finds support on the monetary policy in Japan as investors are closely watching on further decisions, along with the strengthening U.S. and Eurozone economic data.            

Ahead of a strong U.S. corporate earnings, it has sent Deutsche Bank results turned into positive, along with the solid post-Brexit U.K. growth that helped add an optimism, fueling a selling of global government bonds outside Japan.      

Meanwhile, the U.S. 10-year Treasury yield stood at its highest level in almost five months.      

Senior strategist Yukio Ishizuki mentioned “Yen selling is inevitable,” citing an increase in global long-term government bond yields, considering those in the country are now secured.

Yen Surge Ahead of CPI Data

Japan’s September national CPI declined 0.5% year-on-year, along with the national core CPI, which also dropped 0.5% year-on-year, marking its seventh consecutive drop.

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Apparently, retailers remained cautious over price hike on sectors as both uncertainties on global and domestic growth are considered a factor, including lack of wage hikes that make it nearly difficult to sustain about 2% inflation rate required by the Bank of Japan in the next succeeding year.          

September household spending dropped 2.1% year-on-year, compared to a 3.0% drop seen and climbed about 2.8% month-on-month with an expected gain of 0.6%.

The unemployment rate remained steady at 3.0% from an earlier reading of 3.1%. Despite seeing progress in the labor market, it hasn’t met the objective of raising the average wages, and thus consumer spending as companies remained cautious over the rising costs.

The U.S. dollar index, which gauges the dollar’s strength against a basket of major peers declined 0.04% to settle at 98.88.   

Current Stance of USD/JPY Pair

The chart below illustrates USD/JPY price movement amid heightened expectations on average wage hike, including consumer spending.

Given a bullish tone on the pair, an upward trend is seen that suggests market participants to open Buy position as the next candle is expected to move on the green.

In addition, the price action on today’s trade almost touched resistance 105.400 and is anticipated to rally further.   

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Conclusion

Given the currency pair’s bullish tone, we conclude that it would further rally or attempts a false breakout as tension over the average wage hike massively affects investors’ sentiment.

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