Japanese Yen rises as the Greenback's inflation bounce fades

Japanese Yen strengthened as US inflation data revealed a potential slowdown in the Greenback's upward momentum. On Friday, the USD/JPY pair was trading at 153.70, following a dip from its previous spike above 154.50 after the US inflation release. The Consumer Price Index (CPI) data showed a year-on-year increase of 3.4% in August, identical to July's figure and expectations, according to the Bureau of Labor Statistics (BLS).

Monthly price changes rose to 0.4%, a notable increase from the 0.1% gain in the previous month. The core inflation measure, excluding food and energy, grew by 0.3% on the month, exceeding forecasts of 0.2%, but the annual core rate decelerated to 2.4% from 2.5%. Initially, the US Dollar (USD) rose following the higher core inflation figure, but this momentum faded rapidly against the Japanese Yen (JPY), which has been among the strongest currencies this week.

Market anticipation is that the Bank of Japan (BoJ) will raise interest rates next week, with a 25-basis-point hike to 1.25% on the table, a move that would push Japanese borrowing costs to their highest level in over three decades. This combination of the BoJ tightening its policy while the Dollar's inflation-day support wanes is contributing to the Yen's strength and keeping USD/JPY pressured near the lower end of its recent range, around the low-153s.

Technical analysis indicates that USD/JPY is in a bearish phase, trading below both the 20-day Simple Moving Average (SMA) at 157.65 and the 100-day SMA at 159.68, which now act as barriers for any recovery attempts. The Relative Strength Index (RSI) at 29.35 suggests that downside momentum is stretched but not yet reversed, implying that any rebounds are likely to be seen as corrections while the pair remains under these key moving-average barriers.

Support levels are currently at 153.55 and 153.26, with the latter being a lower floor where failure could extend the downtrend.