USD/JPY faces barricades around 145.00, focus shifts to US Retail Sales

• USD/JPY has witnessed selling interest at a 24-year high of around 145.00.
• Significant jump in US core CPI strengthened the odds of a third consecutive 75 bps rate hike by the Fed.
• The depreciating yen is attracting tourism and accelerating export numbers.

The USD/JPY pair has sensed selling pressure while attempting to surpass a 24-year high at 144.99 in the Tokyo session. After a juggernaut rally, the asset is displaying exhaustion signals and is expected to remain subdued ahead. On Tuesday, the major surged sharply from a low near 142.00 after the release of the US Consumer Price Index (CPI) data.

The US Bureau of Labor Statistics reported the headline inflation rate at 8.3%, higher than the estimated figure of 8.1%. As gasoline prices are falling and interest rates are soaring in the US economy, a meaningful decline was expected in the inflation rate. The headline CPI has slipped from the prior release of 8.5% but is not sufficient to trim the odds of a third consecutive 75 basis points (bps) rate hike by the Federal Reserve (Fed).

The catalyst which is responsible for a bumper rally in the US dollar index (DXY) is the increment in core CPI that excludes oil and food prices. The economic data landed at 6.3% higher than the forecasts of 6.1% and the prior release of 5.9%.

One could gauge the fact that headline CPI is light led by falling gasoline prices whereas price pressures in durable goods have increased significantly. This also indicates that signs of exhaustion in the inflation rate have faded away and the inflation saga is back to square.

This week, the major trigger will be US Retail Sales data, which is showing no improvement in the overall demand.

On the Tokyo front, the depreciating yen is creating prolonged hurdles for the Japanese economy. There is no denying the fact that a weaker yen is accelerating tourism and soaring exports but at the same time is demolishing the operating margins of those companies whose inputs are highly import-oriented. The impact of higher input costs on firms’ financial statements will be seen in the upcoming earnings season.