Yen deepens losses to eight-week trough as inflations slows

The Japanese yen fell in Asian markets on Friday against a basket of major and minor currencies, deepening losses for the third consecutive day against the US dollar and hitting its lowest level in eight weeks. It is heading toward its biggest weekly loss in nearly two and a half months, as selling pressure on the currency continues in the foreign exchange market.

Data showed that core inflation in Tokyo held steady below economists’ expectations in September, underscoring continued easing of inflationary pressures on Bank of Japan policymakers. As a result, the likelihood of a rate hike in October has declined.

Price Overview

• USD/JPY rose by more than 0.1% to ¥149.96, the highest since August 1, from today’s opening level of ¥149.79, after touching a low of ¥149.33.

• The yen ended Thursday down 0.6% against the dollar, its second straight daily decline, as strong US economic data reduced expectations of a Fed rate cut in October.

Weekly Trading

• Over the course of this week, which officially concludes at today’s settlement, the yen is down about 1.35% against the US dollar, on track for a fifth consecutive weekly loss and its biggest weekly drop since early July.

• This worst weekly performance in two and a half months is attributed to political uncertainty in Japan as well as the US dollar’s strength and rising US yields, supported by strong economic data and Federal Reserve commentary.

Tokyo Core Inflation

Data released today in Japan showed Tokyo’s core consumer price index rising 2.5% in September, below market expectations of 2.8%. The index also rose 2.5% in August, the slowest pace since March.

Undoubtedly, stable prices reduce inflationary pressures on Bank of Japan policymakers, lowering the chances of rate hikes in Japan this year.

Japanese Interest Rates

• Following the above data, market pricing for a 25-basis-point rate hike by the Bank of Japan in October fell from 50% to 35%.

• To reprice those expectations, investors are awaiting further data on inflation, unemployment, and wages in Japan.