Weekly Exchange Rate Forecast: Steady Price Movements, Yen Depreciation Continues Despite Slowing US Inflation

* 14:52 JST Exchange Rate Weekly Forecast: Is it Steady Price Movements or the Depreciation Trend of the Yen Continues Even as US Inflation Slows
[This Week's Overview]
■The dollar falls below 158 yen due to falling long-term US interest rates and exchange intervention observations

The dollar and yen declined this week. In the congressional testimony of Chairman Powell of the US Federal Reserve (Fed) on the 2nd day held on 7/10, he expressed a policy to maintain high interest rates until confidence was further strengthened in achieving sustainable inflation targets, and it was temporarily bought up to 161 yen 81 yen. However, since the June US consumer price (CPI) announced on the 11th fell below market expectations, September interest rate cut observations intensified, and dollar sales assumed a reduction in Japan-US interest rate differences, spurring yen purchases. Furthermore, yen purchases, which appear to be exchange intervention by the Japanese government, have also been observed, and the dollar and yen plummeted to around the middle of the 157 yen range.

The dollar and yen fell from 159 yen 14 yen to 157 yen 38 yen in the New York foreign exchange market on the 12th. The June Producer Price Index (PPI), which was announced on this day, grew above market expectations, so risk-loving dollar purchases temporarily strengthened. However, since the July University of Michigan Consumer Confidence Index preliminary report and the expected inflation rate for the same index fell below market expectations, speculation spread that interest rates would be cut by 0.5 points in September, and dollar sales and yen purchases became active. The dollar and yen closed at 157 yen 82 yen. Dollar/yen transaction range: 157 yen 38 sen - 161 yen 81 sen.

[Forecast for next week]
■Is it solid price movements, or the depreciation trend of yen continues even as US inflation slows

Are the dollar and yen reluctant to fall next week? A slowdown in the US inflation index has been shown, and since the possibility of interest rate cuts in September is increasing, it is likely that downward pressure will be applied to the dollar. However, even if Japan's exchange intervention is feared, there is a possibility that the medium- to long-term depreciation trend of yen will continue because there will be a constant Japan-US interest rate difference. US Federal Reserve (Fed) Chairman Powell once again expressed the idea of maintaining a tight current monetary policy in his congressional testimony on 7/9-10.

The US June Consumer Price Index (CPI), which was announced later, fell short of market expectations, and inflation over a long period of time calmed down. The market will begin incorporating interest rate cuts twice within the year from September onwards, and it seems that the outlook is likely to fluctuate easily due to depreciation of US interest rates and depreciation of the dollar. Meanwhile, the depreciation of the dollar and the appreciation of the yen progressed after the US CPI was announced, and the Bank of Japan's July interest rate hike observations have receded, and there is a possibility that yen buying pressure will weaken in the near future. Also, although the US inflation index shows a slowdown, the issue of US President Biden's advance and withdrawal has led to speculation that former President Trump will re-enter, and there are concerns about a rekindling of inflation, so it is difficult for the dollar to fall. The possibility that risk-loving yen sales against the euro, Australian dollar, British pound, etc. will increase again in response to stock appreciation in Japan and the US is also likely to be one reason supporting the dollar/yen exchange rate.

[US-June retail sales] (to be announced on the 16th)
Attention is being paid to whether the June US retail sales announced on the 16th will improve from 0.0% compared to the previous month. If the strength of private consumption becomes apparent, it is easy to shift to buying dollars due to speculation that tightening will continue.

[Japan/June Consumer Price Index (CPI) Core Index] (scheduled to be announced on the 19th)
The June Consumer Price Index (CPI) core index announced on the 19th will lead to expectations of additional interest rate hikes by the Bank of Japan if growth accelerates from the previous year of +2.5%, which is likely to be a source of yen purchases.

Expected range of dollars and yen: 156.00 yen to 160.00 yen “FA”

Original article