On Thursday, the Japanese yen lost more ground than the dollar. It was on the verge of reaching its lowest level in 32 years as pressure from increasing interest rates worldwide combined with a hotter-than-expected inflation figure.
A few points separated the yen from reaching its lowest position since 1990, reaching as low as 146.93 to the dollar. The currency moved above levels at which authorities had interfered in currency markets last month. It received scant support from Japanese policymakers’ cautions against dumping the yen. Inflation in the Japanese PPI blasted past forecasts in September. According to data released on Thursday, it was at its highest level in 41 years as soaring raw material costs continued to strain regional firms.
What Do the Inflation Statistic Show?
Most firms now pass on high material prices to their customers. Hence, the figure predicts a similar jump in Japanese CPI inflation statistics anticipated next week. The consumer price index for Japan is presently on an eight-year high trend.
The Bank of Japan’s dovish position on raising interest rates from record lows is the main cause of the yen’s sharp decline this year. The BoJ’s position hasn’t changed much despite rising inflation. The Japanese yen has become much less appealing than its better-yielding rivals due to a growing divide between domestic and international interest rates. As the nation struggles with rising commodity costs, which should also stifle economic development this year, pressure on the yen will remain.
This week, due to aggressive signals from the Federal Reserve, sentiment toward Asian currencies further deteriorated. Now, attention is on U.S. CPI inflation data, which is likely to reveal that inflation remained stubbornly high in September and is coming later today. High U.S. inflation should prompt the Fed to raise interest rates more aggressively. This isn’t good for the yen and its regional rivals.