The Japanese Yen Spikes On Softer US Inflation And Gives The Gain Back

Softer US inflation pulled October Fed hike odds down to near 35%, and USD/JPY fell below 156.50 on the release. It finished back just under 157.50, its fourth straight close on the 157.00 handle. The Yen got the US number it needed and USD/JPY still closed a touch above where it opened.

The BoJ decides two days after the Fed

The Bank of Japan (BoJ) raised its rate to 1.25% on September 18, and swaps price about a 36% chance of another hike on October 30. The Fed's range is 3.75-4.00%, so the gap between the two policy rates is at least 2.5 points before either bank moves again. Markets now give the Fed and the BoJ the same rough one-in-three chance of hiking in October, from rates 2.5 points apart.

Japan's big manufacturers are forecast to feel a little better

The BoJ's Tankan survey of large manufacturers lands at 23:50 GMT on Wednesday, forecast at 25 from 22, along with the summary of opinions from the BoJ's September meeting. Tokyo's September Consumer Price Index (CPI) follows on Thursday at 23:30 GMT, with the measure that strips out fresh food forecast at 2.4% from 1.8%. The US jobs report is due on Friday at 12:30 GMT.

Firm Tokyo prices would lift the October odds for the BoJ, and a strong payroll count would lift them for the Fed, so USD/JPY gets both sides of the rate gap within two days. One-in-three odds on a BoJ hike translate to probably December, and sooner only if Tokyo's prices jump the way the forecast says.

USD/JPY levels under the 200-day average

Resistance: The 200-day average, an Exponential Moving Average (EMA) just under 158.00, has capped four straight closes since the September 25 drop. 159.00, the September 24 high, is above it.

Support: Wednesday's low below 156.50 is the first level, and 156.00 is next.

Bias: Short under 158.00 on a closing basis, with 156.00 as the first objective and 155.00 as the second. Daily momentum argues for patience, with the Stochastic Relative Strength Index (Stoch RSI) near 79 and still climbing, so a retest of the 200-day wouldn't be a surprise. A daily close above 159.00 ends the short.

USD/JPY daily chart