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FOREX: JPY Volatility in Firm Focus as US Inflation Data Approaches

FOREX
  • Despite USDJPY extending its recovery off the lows to roughly 100 pips, the pair remains 0.6% lower on the session amid the extended decline for core yields on Wednesday. Heightened volatility following last night’s US presidential debate is evident by JPY futures volumes roughly 40% above average for midway through the European morning.
  • Adding to the most recent theme of yen strength, BoJ board member Junko Nakagawa reiterated overnight that the BoJ will adjust the degree of easy policy if the economy realises the bank’s forecast for the economy and prices as real interest rates remain at considerably low levels. Yield differentials are underpinning the moves with US-JP lower at the front, the spread at +319bps, levels last seen in August 2022.
  • Ahead of the significant US CPI release, downside focus will remain on intra-day lows of 140.71 and then 140.25, the Dec 28 low from last year and key support. Resistance is not seen until 143.71, the Sep 9 high.
  • Worth noting that MXNJPY briefly extended the year’s range to or 26% as the cross slipped below 7.00, and the lowest level since March 2023 as the Morena party’s judicial reform plan makes further progress through congress.
  • The greenback is underperforming the broader G10 basket, although adjustments across other major pairs remain contained ahead of the data. EUR, AUD and CAD are between 0.15-0.20% higher, whereas NZD underperforms at the margin.
  • US CPI up next where consensus sees core CPI at 0.2% M/M in August after a slightly softer than expected 0.165% M/M in July.
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