USD/JPY skyrockets amidst surging US Treasury yields following a slight inflation jump

• US September CPI YoY climbs to 3.7%, stirring the market and propelling USD/JPY towards 149.70.
• Odds for a December Fed rate hike jump to 35.7%, as per CME FedWatch Tool, amidst inflationary pressures.
• Japanese Machinery Orders dip for the second month, while BoJ Governor maintains economic outlook despite global uncertainties.

The USD/JPY rallies sharply following the US 10-year Treasury bond yield footsteps after the US Bureau of Labor Statistics (BLS) revealed that inflation jumped slightly in September, contradicting dovish stances adopted by US Federal Reserve officials ahead of the US CPI report. The USD/JPY is trading at at around 149.70.

US CPI data exceeds expectations, fueling a sharp rally in USD/JPY, as market eyes potential Fed rate hike

US inflation exceeded September estimates, revealed the US Bureau of Labor Statistics (BLS). The Consumer Price Index (CPI) rose by 3.7%, exceeding forecasts of 3.6%. annually based, where core CPI slowed to 4.1%, below forecasts, and August’s 4.3%. Following the data, US Treasury bond yields spiked and underpinned the USD/JPY pair, on speculations the US central bank would increase rates before year’s end.

Regarding this, the CME FedWatch Tool witnessed an increase in the odds for a 25 bps lift of the Fed by the December meeting, from 26.3% to 35.7%.

Additional data showed the labor market is getting into balance, but it remains hot, as unemployment claims rose 209K, below forecasts of 210K.

On the Japanese front, Machinery Orders fell for the second consecutive month in August, spurring worries about the global economic slowdown and China’s wobbly recovery. Aside from this, Bank of Japan Governor Kazuo Ueda said on Thursday there was no change to his view on the global economic outlook despite heightened uncertainty following the conflict in the Middle East.

USD/JPY Price Analysis: Technical outlook

From a technical standpoint, the USD/JPY uptrend is intact and could re-test the 150.00 figure in the near term. A breach of the latter will expose the last year’s high of 151.94. On the flip side, the fears of an intervention by Japanese authorities could cap the rally and expose the pair to some selling pressure. Key support levels are found at the psychological 149.00 mark, followed by the Tenkan-Sen level at 148.71.