USD/JPY revisits over-a-year high of 159.00 ahead of US CPI release
- USD/JPY jumps to near 159.00 ahead of the US inflation data, the highest level seen in one-and-a-half years.
- The US headline CPI is expected to have grown steadily by 2.7% YoY.
- Growing concerns over Japan’s early snap election have been a major drag on the Japanese Yen.
The USD/JPY pair revisits its one-and-a-half-year high of 159.00 during the European trading session on Tuesday. The pair trades firmly due to continued underperformance from the Japanese Yen (JPY), following hopes of an early snap election by Japan’s Prime Minister (PM) Sanae Takaichi, which were recently propelled.
Japanese Yen Price This week
The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies this week. Japanese Yen was the weakest against the British Pound.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.28% | -0.52% | 0.44% | -0.22% | -0.25% | -0.56% | -0.30% | |
| EUR | 0.28% | -0.25% | 0.80% | 0.08% | 0.04% | -0.28% | -0.02% | |
| GBP | 0.52% | 0.25% | 1.05% | 0.34% | 0.28% | -0.04% | 0.23% | |
| JPY | -0.44% | -0.80% | -1.05% | -0.69% | -0.72% | -1.03% | -0.77% | |
| CAD | 0.22% | -0.08% | -0.34% | 0.69% | -0.05% | -0.34% | -0.09% | |
| AUD | 0.25% | -0.04% | -0.28% | 0.72% | 0.05% | -0.31% | -0.05% | |
| NZD | 0.56% | 0.28% | 0.04% | 1.03% | 0.34% | 0.31% | 0.25% | |
| CHF | 0.30% | 0.02% | -0.23% | 0.77% | 0.09% | 0.05% | -0.25% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Japanese Yen from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent JPY (base)/USD (quote).
On Friday, Japan Innovation Party leader Hirofumi Yoshimura told public broadcaster NHK that he met with PM Takaichi and felt her view on the timing of an election had shifted to a new stage.
Earlier in the day, Japan's economy minister, Minoru Kiuchi, said that the government needs to aim for early parliamentary passage of the fiscal budget 2026.
Market experts are of the view that Tokyo aims for a big spending budget to boost the economy, a scenario that could stall the Bank of Japan’s policy-normalization stance in the near term.
Meanwhile, the US Dollar (USD) trades marginally higher ahead of the United States (US) Consumer Price Index (CPI) data for December, which will be published at 13:30 GMT. The impact of the US inflation data is expected to be limited on the Federal Reserve’s (Fed) monetary policy expectations as policymakers remain more concerned about employment risks.
The US core inflation – which excludes volatile food and energy items – is expected to have risen at a faster pace to 2.7% YoY from 2.6% in November, with headline figures growing steadily by 2.7%. Month-on-month, both headline and the core CPI are estimated to have risen by 0.3%.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.