USD/JPY edges lower after stronger-than-expected Japanese inflation, stimulus package

USD/JPY falls as the Yen gains on expectations the BoJ will raise interest rates in December. 

Bets are falling meanwhile for the Federal Reserve to cut interest rates, narrowing the differential. 

This advantages the JPY, creating a headwind for USD/JPY going forward. 

USD/JPY is trading a touch lower in the 154.30s on Friday as the Japanese Yen (JPY) strengthens against the US Dollar (USD) due to the release of higher-than-expected Japanese macroeconomic data, and Tokyo’s announcement of a $250 billion economic stimulus package. 

The Yen’s gains are comparatively limited against the US Dollar, however, which is itself underpinned by a narrative of American exceptionalism, the anticipation of Dollar-positive policies under President elect Donald Trump, and a shallower downward trajectory for US interest rates which is different from the steeper fall expected last month. 

The expectation that interest rates will remain higher for longer in the US is positive for the Greenback because it attracts foreign capital inflows. 

Although Federal Reserve (Fed) officials, including Fed Bank of New York President John Williams and Fed Bank of Boston President Susan Collins, recently said they saw inflation cooling and interest rates falling further, market-based gauges have suggested a lower chance of the Fed reducing rates in December.