This week has witnessed a prevailing trend of yen depreciation. Various risk factors have emerged, including weak Chinese trade statistics, debt issues with major Chinese real estate companies, Italy’s banking taxation, and geopolitical tensions causing a rise in oil prices. In this context, the USD/JPY exchange rate has been steadily climbing, and cross-yen pairs are also showing a robust stance. The monetary policies of major economies are balancing between inflation and economic growth, and amid uncertain prospects ahead, the Bank of Japan’s resolute stance on continuing its easing policy is once again becoming a focal point in the market.
Yesterday, the highly anticipated US Consumer Price Index (CPI) was released. The year-on-year increase of +3.2% slightly fell short of the market’s expectation of +3.3%, yet it was a rise from the previous +3.0%. The initial response in the USD exchange rates was a selling trend, but it quickly reversed, ending the NY market session on an upward trajectory. However, looking at the trend of the USD index, after last week’s rise, it has plateaued, showing a back-and-forth movement this week. Since August began, a clear direction seems to be lacking.
As the week concludes, today’s schedule includes the US Producer Price Index and the University of Michigan Consumer Sentiment Index (Preliminary). The market’s expectation for the July US PPI is a year-on-year increase of +0.7% (previous value: +0.1%), and a core year-on-year increase of +2.3% (previous value: +2.4%). While opinions on strength or weakness are divided based on the previous values, attention should be paid to the fact that the levels themselves are relatively low. Inflation pressures appear to be subsiding considerably. As for the University of Michigan index, the market expects a slight decrease from 71.6 to 71.3. However, this is not a significant decline, and the index is anticipated to remain at a high level for the year, just slightly below the previous peak. The effects of the continuous interest rate hikes by the US monetary authorities seem to have been absorbed reasonably well, but how the market will respond remains to be seen.
Despite the settling of inflation as indicated by the results of the July US Consumer Price Index, the strength of the USD is surprising. However, considering the approaching weekend, a bit of exhaustion in USD buying can be anticipated.
Current position is only a short position for USDCHF.