USD/JPY gains traction following mixed US CPI data

• USD/JPY trades at 147.58, up 0.34%, after US CPI for August rises to 3.7% YoY, beating 3.6% estimates.
• US 10-year Treasury note yield remains steady at 4.28%, despite initial volatility following the inflation report.
• Market futures price in a 97% chance the Fed will hold rates steady; focus shifts to upcoming economic data from both countries.

The Greenback (USD) extended its rally versus the Japanese Yen (JPY) on Wednesday after an inflation report in the United States (US) came mixed, though suggesting there’s a slim chance for additional monetary policy tightening. The USD/JPY is trading at 147.58, gaining 0.34%.

Greenback rises against Yen as US CPI exceeds estimates, but market skeptical of imminent Fed tightening

The US Department of Labor revealed that inflation in August’s uptick was foreseen but exceeded estimates. The Consumer Price Index (CPI) rose by 3.7% YoY, above 3.6% estimates, and crushed July’s 3.2% reading, blamed on higher energy prices. The positive news was that core CPI edged lower to 4.3% YoY, as expected, from 4.7% in July.

On the data release, the USD/JPY wavered around the 147.12/147.74 area before stabilizing at around 147.40. Since then, the pair has steadily exchanged hands at current price levels. The US 10-year Treasury note is yielding 4.28%, unchanged, after seesawing towards 4.35%.

Even though the latest round of data, with the labor market remaining tight, inflation stickier than expected, should warrant another interest rate increase, market participants think otherwise. Money market futures have priced in a 97% chance the Federal Reserve would keep the Federal Funds Rate (FFR) at the current range. However, the odds stand at 41% for the November meeting, unchanged from last week’s reading.

Aside from this, USD/JPY traders would look forward to the release of economic data to take cues on the pair’s direction. The Japanese agenda will release figures for Machinery Orders. On the US side, Initial Jobless Claims, the Producer Price Index (PPI), and Retail Sales would update the status of the US economy.

USD/JPY Price Analysis: Technical outlook

The USD/JPY has printed two straight days of positive price action, opening the door to test the year-to-date (YTD) high of 147.87. If Japanese authorities remain muted, there’s a change the major could challenge the psychological 148.00 area. Once cleared, the next stop would be the November 1 swing high at 148.82. On the flip side, a downward correction is seen if the USD/JPY drops below today’s low of 147.01.