Yen hovers near six-week low as US inflation strengthens Fed rate hike bets

The  yen edged lower against the US dollar on Wednesday, November 11, trading near its weakest level in six weeks, as stronger-than-expected US inflation figures reinforced expectations that the Federal Reserve will resume raising interest rates in December.

The Japanese currency remains under pressure from the wide interest rate differential between Japan and the United States, amid growing speculation that the Fed could deliver a larger-than-anticipated rate increase next month.

Price overview

The US dollar rose 0.08% against the  yen to 158.87 in Asian trade on Wednesday, from the previous close of 158.75, after recording a session high of 158.96 and a low of 158.67.

The yen lost approximately 0.54% against the dollar on Tuesday following the release of US inflation data.

US interest rates

US consumer prices increased 0.4% in October, exceeding expectations of 0.3%, while core inflation rose 0.3%, compared with forecasts of 0.2%.

The figures strengthened the case for further monetary tightening, particularly after Federal Reserve Governor Christopher Waller indicated that persistent inflation could warrant a 50-basis-point increase in December.

The prospect of higher US borrowing costs has supported Treasury yields, increasing the appeal of the dollar against the Japanese currency.

Japanese interest rates

Investors are awaiting further indications from the Bank of Japan regarding the timing of its next interest rate increase.

A more cautious approach to monetary tightening in Japan could leave the yen vulnerable to additional losses, particularly if the Federal Reserve accelerates its rate increases.

Intervention risks

With the dollar approaching the 159 yen mark, attention is increasingly turning to Japanese monetary authorities and the possibility of intervention to curb excessive currency weakness.

Further depreciation toward the psychological barrier of 160 could intensify speculation about government intervention, potentially limiting speculative selling of the Japanese currency.