Why is the Japanese Yen barely moving as a Bank of Japan deputy flags inflation risk?

• Can USD/JPY Break From 158.00 as BoJ Deputy Governor Himino Warns of Inflation Risks?
• Two BoJ rate hikes have come despite Japan's core inflation remaining below 2% for seven months.
• Thursday's September core CPI release is expected to show 2.1%, up from 1.7%.

USD/JPY remains near 158.00, confined to a 157.50–159.00 band for 12 sessions, with Wednesday's inflation warning from BoJ Deputy Governor Himino failing to push it outside that range. The Bank of Japan (BoJ) has delivered two rate increases this year, taking its rate to 1.25% in September, even as core inflation stayed below its 2% target in all seven months through August. Himino said underlying inflation was almost at 2%, with price risks tilted to the upside.

Why is Deputy Governor Himino warning against delay eight weeks before the next likely move?

With upside inflation risks still elevated, Deputy Governor Himino cautioned that a delayed policy adjustment could allow those risks to materialise. Financial conditions remained accommodative in his assessment: real interest rates were low, while bank lending was expanding rapidly. An initial modest gain in the Yen following his comments was subsequently reversed within Wednesday's trading range.

For the October 30 decision, Kyodo anticipates no change to the BoJ's 1.25% rate, while swaps assign roughly a 75%-80% probability to a December 18 hike. Meanwhile, Japan recorded a September trade deficit of ¥536.6 billion, roughly three times the ¥181 billion estimate. Exports increased 16.7% year on year, short of the 20.1% forecast. Whatever Deputy Governor Himino's inflation assessment, a deficit of that magnitude requires Yen selling to fund imports.

Can the Yen escape the pull of the rate gap and the finance ministry?

Between April 28 and May 27, Japan's Ministry of Finance purchased ¥11.74 trillion of Yen. It subsequently acted alongside the US Treasury in late July, after USD/JPY climbed above 160.00. Following a hot US inflation reading, Finance Minister Katayama reiterated his warnings on October 15; the pair has not moved above 159.00 since.

These competing forces leave USD/JPY range-bound. Limiting its downside is a 10-year Treasury yield near 5.1%, compared with Japan's 10-year yield, which touched about 3.1% on October 7 before returning to around 2.9% by October 16. On the upside, the possibility of renewed Yen purchases restrains the pair. Although Finance Minister Katayama has not specified a level for intervention, traders are focused on the threshold USD/JPY breached before the previous intervention.

Would 2.1% core inflation exceed the target despite electricity subsidies?

At 23:30 GMT on Thursday, Japan releases its national Consumer Price Index (CPI) for September. Core inflation, which excludes fresh food, is projected to rise to 2.1% from 1.7%. In August, both headline inflation and the gauge excluding food and energy stood at 1.9%. Government energy subsidies helped push electricity prices down 2.4% year on year that month, partly explaining why core inflation remained below 2% through both BoJ rate increases.

A 7-2 vote approved the BoJ's September rate increase, with both dissenters citing inflation below 2%. Should the reading reach 2.1%, that objection would no longer hold, a month after it was raised and a week ahead of the next policy decision.

A robust reading would nevertheless reinforce expectations for a December hike rather than advance it to October 30, potentially offering the Yen less support than the headline number implies. Due at 14:00 GMT on Friday, the University of Michigan survey is expected to put US households' inflation expectations at 4.7% for the next year and 3.5% over five years. US yields remain the reason USD/JPY is trading nearer 160.00 than 155.00.

Which Yen levels matter within the 157.50–159.00 band?

Resistance: Monday's and Tuesday's advances stalled at 158.50. Since October 6, no session has exceeded 159.00, with the October 14 high marginally below that mark. The 160.00 threshold was breached by USD/JPY ahead of July's intervention.

Support: The 200-day Exponential Moving Average (EMA), slightly below 158.00, arrested Wednesday's decline. Every session since October 6 has held above 157.50, while the October 2 low is positioned just below 157.00.

Bias: A long stance remains in place as long as closes hold above 157.50, targeting 158.50 first and 159.00 next. However, the daily Stochastic Relative Strength Index (Stoch RSI) has retreated from above 80 in early October to around 56. This points to weakening momentum within the band, rather than momentum building for a breakout. A daily close below 157.50 invalidates the long position.

Daily USD/JPY chart