The forecast for the US dollar is in somewhat positive territory. As a rather predictable result, the forecast for the dollar to yen exchange rate has fallen to a slightly pessimistic level. The main reason for this would be the upcoming inflation (CPI) data coming out this Thursday. Therefore, trying to buy yen with the dollar may be difficult in the coming days.
The upcoming inflation data will have a significant impact on the Fed’s decisions about rate cuts in 2024. Overall, as things currently stand, traders expect a 140 bp rate cut by the end of the year. They believe this rate cut will come in several stages, starting off in March at an upcoming meeting. However, inflation data could change expectations considerably. Therefore, markets are quite vulnerable to the upcoming data.
The pair had actually increased in value this Wednesday with recent data coming from Japan on labour. This indicated that the wages for Japanese workers had been contracting for 20 months in a row. This goes against Japanese official expectations, as the BoJ hoped that wages would actually make gains.
Thereafter, they planned on finally tightening their monetary policy. However, it seems they may have to hold back for now. Wage numbers are usually a vital part of their plans for rate policy, so it’s not surprising this had an effect on the dollar to yen rate.
There are other factors affecting the yen conversion rate right now, inflation being a major contributor. The consumer inflation rate actually fell down to 3.3%, its lowest since mid-2022. It also appears that essential amenities like food and fuel prices fell at this time. Real wages fell by 3% in comparison to this time last year when adjusting for inflation for November. This was even worse than the 2.3% figure we saw for October. Overall, there seems to be a trend of prices going down across Japan. If wages eventually rise at the same time, it would be a green light for BoJ plans.
We will have to wait further to see how this affects the dollar to yen exchange rate.