- The Japanese Yen (JPY) is falling for a sixth day
- Fiscal dove Takaichi could call a snap election
- The US Dollar (USD) rises against major peers
- US core CPI was cooler than forecast at 2.6%
The US dollar Japanese yen (USD/JPY) exchange rate is rising for a sixth straight day. The pair rose 0.17% in the previous session, settling on Monday at 158.16. On Tuesday at 18:00 UTC, USD/JPY trades +0.62% at 159.14 and traded in a range of 157.97 to 159.19.
VN was one of the weakest performers on Tuesday amid growing concerns that the Japanese government will adopt more fiscally expansionist policies in order to boost economic growth.
Prime Minister Sanae Takaichi may call an early general election to capitalise on her popularity and secure a larger majority in parliament. However, the outcome for the yen could be negative, as Takaichi is a dove on both fiscal and monetary policy. Fiscally, she is comfortable with a higher deficit, whilst opposing rapid rate hikes from the Bank of Japan.
The yen’s weakness is prompting traders to monitor for possible intervention by Japanese authorities in the forex market to shore up the currency.
The US dollar is rising across the board. The US dollar index, which measures the USD against a basket of currencies, is up 0.29% to 98.97, marking a third day of gains.
The US dollar is rising against its major peers despite cooler-than-expected core US inflation.
Opportunity headline inflation, as measured by the CPI, remained unchanged at 2.7% year-on-year in December. Meanwhile, core inflation, which removes more volatile items such as food and fuel go to school affected facts at 2.6% year on year
The data support the view that the Federal Reserve will leave interest rates unchanged in the January meeting. However, the longer-term downward trend in inflation persists, keeping the prospect of rate cuts later in the year on the table.
The market is still pricing in two rate cuts this year. The first rate cut is fully priced in for June.