USD/JPY rose to 159.13 — the highest since September 2. The yen is falling for the second day in a row, the trigger being October US inflation data released on Tuesday.
USD/JPY is the dollar-to-Japanese-yen exchange rate. The higher the number, the cheaper the yen. The DXY dollar index shows the dollar's strength against a basket of major currencies.
This matters to traders because of the 160 level. Japan's Ministry of Finance has already stepped into the market with interventions near it, and now it is less than a figure away, that is, less than one point of the rate.
Where are the numbers now?
The pair is trading around 159.13 and is adding 0.24% for the day.
- 159.13 — the current USD/JPY level, up 0.24% in a day
- 102.50 — the DXY dollar index
- 102.94 — this year's high, set in October
Why is the yen weakening?
The trigger is October US inflation. Overall price growth was +0.4% for the month versus a forecast of 0.3%; in September it was 0.6%.
- +0.3% — the core measure, excluding food and fuel; 0.2% was expected
- Above forecast on both numbers — this is an argument for a tougher Fed move in December
What are they saying at the Fed?
- Christopher Waller. The board member said in advance: if core inflation comes in around 0.3% or higher, December may require a move of a full 0.5 percentage point.
- Lorie Logan and Anna Paulson. The heads of the Dallas and Philadelphia Feds spoke in favor of further tightening.
- Michelle Bowman. The Fed's vice chair for supervision stressed the need to bring inflation under control.
- 88.5% and 11.5%. That is what rate futures (CME FedWatch) assign to a 0.25-point hike in December and to a 0.5 move.
What keeps the pair near 160?
The main argument against the yen is the rate gap. The Bank of Japan is at 1.25%, the Fed at 3.75-4.00%. The Japanese regulator raises rates slowly, and that gives the yen little support.
Only the threat of intervention is holding back the move. That is when the Ministry of Finance enters the market and sells dollars to support its currency.
- ¥7.98 trillion on July 30 — this year's record; Japan entered the market several times
- Satsuki Katayama — the finance minister warned in early November that the authorities would respond to disorderly and excessively speculative exchange-rate moves
What's next?
The nearest point is the December Fed meeting, where the market expects a rate hike. Another three 0.25-point moves are priced in through mid-2027; the meeting date can be seen in the economic calendar.
The main thing: the rate gap is weighing on the yen, but near 160 dollar buyers may meet Japan's Ministry of Finance. If you trade such moves on a prop firm account, it is convenient to check the limits in the challenge calculator.
Did you hold the yen when US inflation came out?
A 2.5-point rate gap is visible to everyone. The direction here was guessable for months. The question is the notional: on an account of a couple thousand dollars, the path from 158 to 159 is lunch, not a result. prop trading was invented for exactly this case: a paid evaluation, after which comes the company's trading account with a hard loss ceiling and your profit share under the contract. Less than a figure remains to 160 and a possible intervention, so it makes sense to understand the mechanics now.