USD/JPY successfully regained the 149 mark, the foreign exchange market held interest rates and waited for the US CPI

In early Asian trading on Thursday (October 12), the US dollar/yen continued to maintain momentum after successfully recovering the 149 mark. The US producer price index (PPI) and FOMC (FOMC) meeting notes failed to produce a meaningful boost to the US dollar. The foreign exchange market held interest rates and waited for the arrival of the US consumer price index (CPI) data. The sharp rise will lead to a large influx of traders into the US dollar in the short term. Inflation data will remain the main driver of the market in the second half of this trading week. Technical analysis said that the short-term target for the US dollar/yen is 149.60.

The US PPI data generally beat market expectations, and the latest meeting notes released by the Federal Reserve failed to stimulate interest in firm buying of the dollar. Japan's PPI fell from 0.3% to -0.3% in September, while machinery orders are expected to rebound to -0.5% in August from -1.1% the month before.

Although Japan's largest trade union federation has achieved its biggest pay rise in 30 years this year, Kazuo Ueda, governor of the Bank of Japan, may want to see more evidence of sustained wage growth before announcing a new monetary policy. Rengo, Japan's trade union federation, usually unveils the outline of its strategy for the next round of spring wage negotiations in mid-October. This year, the company will release its basic plan on October 19, which includes broad wage increase targets.

These initial targets are often very ambitious, and in 2022, the group proposes to seek a 5% increase in total wages during spring negotiations, up from the 4% target set in previous years, which includes a 3% increase in base wages. The continuation or escalation of this demand would indicate that existing upward pressure on wages will persist from the labour side. Failing that, central banks are likely to be more cautious.

Prime Minister Fumio Kishida, who is also pushing for sustainable wage increases to improve income distribution, may consider extending or strengthening subsidies to companies that raise wages to maintain momentum after strong growth this year. He ordered his team to work on economic measures by the end of the month, which could include provisions to support wage increases, especially at smaller companies.

The Bank of Japan is considering raising its inflation forecast for the fiscal year through March to nearly 3 per cent from the current 2.5 per cent, people familiar with the matter said on Tuesday. The upward revision would reflect a sharper-than-expected rise in prices, as well as higher crude oil prices, while a weaker yen also pushed up import prices, the sources said.

The Bank of Japan plans to release a new economic and price outlook report at the end of its two-day policy meeting ending October 31.

The US CPI inflation data will be a major showdown on Thursday, with the market expecting the headline CPI to dip slightly to 3.6% annualized in September from 3.7%. In the coming months, inflation expectations and the possibility of a domestic recession in the United States continue to rise, and the sharp rise in the US CPI will lead to a large influx of investors into the dollar in the short term.

USD/JPY Technology Outlook

FXStreet analyst Joshua Gibson said USD/JPY is up 0.6% from this week's lows, but intraday price action finds itself hovering along the 200-hour simple moving average (SMA), and the number short-term buyers can beat will be last week's price action, which peaked just below 149.60.

The USD/JPY pair remains firmly in the bullish zone over the longer term, with the daily candlestick still well supported by the 50-day moving average near 147.00 and the 200-day moving average well below the current price, reversing the bullish trend to the 139.00 mark.