USDJPY Weekly Forecast: Are inflation and the Fed in an abusive relationship? January’s inflation report spurred a major rally in Treasury yields that sent stocks reeling and the USDJPY to 116.34 within a point of its five-year high at 116.35.
, rose to 6% from 5.7% in December for the highest yearly rate since August 1982. The prediction was 5.9%. Monthly increases were 0.5% for overall CPI and 0.6% for core index.
Currency markets at first followed rising Treasury yields. In the first hour after the 8:30 am New York time CPI release, the dollar improved in every major pair. The USD/JPY rose from 115.80 to 116.34, the euro dropped from 1.1436 to 1.1375 and sterling fell from 1.1579 to 1.3523. The USD/CAD rose from 1.2677 to 1.2919.
Equities reverted to the losing ways that have made 2022 negative for the three US averages.The Dow dropped 526.47 points, 1.47% to 35,241.59. The S&P 500 shed 1.81%, 83.10 points to 4,504.08. The Nasdaq was the biggest loser falling 2.10%, 304.73 points to 14,185.64. Before the CPI data the debate was whether the Fed would hike 0.5% at the March 16 meeting and the general opinion was that it would not.
Japanese economic data was disappointing. Labor Cash Earnings and Household Spending for December, both at -0.2%, missed their respective forecasts of 0.1% and 0.3%. The Eco Watchers Survey that tracks regional economic trends dropped sharply in January, to 37.9 from 57.5 for the current Index and to 42.5 from 50.3 for the outlook measure. The producer Price Index climbed 0.6% in January and 8.6% for the year, better than the 0.4% and 8.2% forecasts.
Treasury rates in the US are headed higher and they will take the USD/JPY with them. The immediate goal is 116.35, then 116.65 followed by 117.00.
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