The Japanese yen (JPY) held onto slight gains against the US dollar (USD) on Wednesday, though it faced challenges in making further recovery, even after the dollar weakened notably due to disappointing US inflation figures. As of now, USD/JPY was sitting around 162.14, which is a 0.07% decrease for the day.
The US producer price index (PPI) dropped by 0.3% in June, following a 0.6% rise in May. The annual PPI rate decreased to 5.5%, down from 6.0%, and this was below expectations of 6.2%. Core PPI increased by 0.2% in June, falling short of the anticipated 0.4%, while the annual core rate edged up from 4.6% to 4.7%, again under expectations of 5.2%.
This data comes on the heels of weaker-than-anticipated US consumer price index (CPI) figures released on Tuesday. The disappointing inflation numbers have dampened expectations for imminent interest rate increases by the Federal Reserve, which puts additional pressure on the dollar.
The US Dollar Index (DXY), which gauges the US dollar’s performance against six major currencies, is now around 100.70, having fallen from an intraday peak of 101.03.
Nonetheless, the slowdown in inflation might not last. Renewed tensions between the US and Iran have led to a spike in oil prices. New York Fed President Williams commented on Wednesday that inflation is still high and needs to be consistently pushed back to the central bank’s 2% target.
On the Japanese front, there’s a level of apprehension among traders regarding potential government intervention, given that the yen is lingering near 40-year lows. There was some hope that Japan’s Government Pension Investment Fund (GPIF) might shift more funds into domestic assets, but reports from Reuters indicated that there are no immediate plans to change asset allocation targets, which dampens support.
Japan’s heavy reliance on energy imports also means that rising oil prices are contributing to the strain. Furthermore, concerns about high public debt and expansive fiscal policies from the government are putting additional pressure on the yen.
Prime Minister Sanae Takaichi stated on Wednesday that bolstering domestic investment and enhancing international competitiveness could help foster potential growth and maintain trust in the yen. However, it still seems like a general inclination for USD/JPY is leaning upward, primarily due to the significant interest rate gap between Japan and the US.
