USD/JPY jumps toward 149.50 after US inflation data

• The US Dollar strengthens following a slight surprise in US consumer inflation.
• US Treasury yields soar, boosting USD/JPY to the highest level in six days.
• The pair is breaking out of a weekly range, opening the doors to the dangerous 150.00 area.

The USD/JPY rose from 149.20 to 149.48, reaching the highest level since Friday, following the release of US economic data. Although the inflation figure came in slightly above expectations, it triggered a strong market reaction, boosting the US Dollar. Wall Street Futures pulled back after the release of the numbers.

Inflation steady in September 

The US Consumer Price Index (CPI) increased by 0.4% in September, surpassing the market consensus of 0.3%. The annual inflation rate stood at 3.7%. The Core CPI, which excludes volatile food and energy prices, also rose by 0.3%, in line with expectations. The annual Core CPI rate decreased from 4.3% in August to 4.1% in September. These figures were relatively close to expectations but adds to the surprise from Wednesday's Producer Price Index (PPI) report, which also exceeded expectations.

A different report indicated that Initial Jobless Claims totaled 209,000 in the week ending October 7, slightly below the market consensus of 210,000. These figures suggest that the labor market remains strong. The combination of persistent inflation above the target and a potentially tight labor market does not necessarily imply that the Federal Reserve will tighten monetary policy further, but it does suggest the possibility of high-interest rates for a longer period of time.

The outlook on rates weighed on Treasury bonds. The US 10-year bond yield jumped rose to 4.62% and the 2-year to 5.08%. The Japanese Yen lost ground versus the US Dollar but printed fresh daily highs versus its other G10 rivals as risk sentiment deteriorated. 

The USD/JPY is hovering slightly below 149.50, attempting to break out of a range that has prevailed for more than a week. A consolidation above 149.50 would draw attention to the 150.00 area, which triggered sharp moves earlier in October. On the flip side, a decline below 149.00 would weaken the pair. Support levels below are seen at 148.50 and 148.20.

Technical levels