The Japanese Yen (JPY) has continued to strengthen against the US Dollar (USD) for three consecutive days on Tuesday, supported by the belief that the Bank of Japan (BoJ) will soon change its monetary policy.

New inflation data from Japan shows positive economic developments toward sustained inflation increases. This gives the BoJ an opportunity to consider normalizing its currently very loose monetary policy.

Additionally, recession uncertainty benefits the safe-haven currency JPY, drawing the USD/JPY pair to around 148.00 during Tuesday’s Asian session. Meanwhile, the USD has fallen to its lowest level in nearly three months, as there is growing acceptance that the Federal Reserve (Fed) has completed its interest rate hikes and may start loosening its policy in the first half of 2024. This further intensifies selling pressure around major currencies.

Market participants are now awaiting the BoJ's core Consumer Price Index release for additional momentum ahead of the Conference Board’s US Consumer Confidence Index release and speeches from several FOMC members during the North American session.

Nonetheless, the main focus remains on the preliminary estimate of US Gross Domestic Product (GDP) growth for the third quarter on Wednesday and the US Core PCE Price Index, which is the inflation measure preferred by the Fed, on Thursday.

Daily Market Movers Summary: Japanese Yen Strengthens Due to BoJ-Fed Expectation Divergence

  1. Government data shows that in October, Japan’s national and core CPI figures remained above the BoJ's target of 2% for 19 consecutive months.
  2. A spike in Japan's wholesale services inflation, driven by a tight labor market, has fueled speculation that the BoJ will end its negative interest rate policy in 2024.
  3. On Monday, the Producer Price Index (PPI) for services in Japan rose to 2.3% in October, signaling an increase from the previous month’s revision of 2.0%.
  4. Major companies in Japan plan to raise wages through 2024, providing room for the BoJ to cancel large-scale monetary stimulus.
  5. The US Dollar is approaching its monthly low as the Fed is perceived to have completed its interest rate hikes and may loosen its policy in March 2024.
  6. A risk-off tone favors the JPY’s safe-haven status, putting pressure on the USD/JPY pair for three consecutive days on Tuesday.
  7. Investors are awaiting the BoJ's Core CPI report for short-term impetus.
  8. The BoJ’s inflation gauge, which has risen from a low of 2.7% in February, is expected to remain stable at 3.4% YoY in October.
  9. Speeches from FOMC members and the Conference Board’s US Consumer Confidence Index will be closely monitored during the North American session.


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