Yen attempts to bounce up from 159.45 lows ahead of the US inflation release

The Japanese Yen (JPY) experienced a notable surge, breaking through the 159.45 support level and approaching the 159.00 mark against the US Dollar (USD) on Wednesday. This breakout occurred as market participants anticipated a softer-than-expected Consumer Price Index (CPI) report from the US later in the day. The CPI data, released by the US Department of Labor Statistics, is expected to show a moderate slowdown in July's consumer prices, with inflation easing to a 3.4% annual rate from 3.5% in June.

Similarly, core CPI is forecasted to decelerate to a 2.5% year-on-year reading from the previous 2.6% rate. Analysts such as Brown Brothers Harriman's Elias Haddad emphasize the CPI report's significance, suggesting that it could influence Federal Reserve (Fed) funds rate expectations and impact risk sentiment. A weaker-than-anticipated CPI reading could potentially bolster the case for a more dovish stance from the Fed, which in turn might weaken the USD and lift risk assets.

However, Haddad cautions that the scope for a more aggressive hawkish repricing from the Fed appears limited due to already restrictive policy conditions, which may negatively impact the USD. The Yen's strength is also supported by the Bank of Japan's (BoJ) Summary of Opinions, which indicated mounting concerns about upside inflation risks and a possibility of a quarter-point rate hike in September. The BoJ's hawkish tone adds to the Yen's bullish momentum.