In the Tokyo market early on the 11th, the yen weakened toward around ¥159 per dollar. Dollar buying prevailed as stronger-than-expected US CPI strengthened expectations of a December rate hike.
In the Tokyo foreign exchange market early on the 11th, the yen weakened against the dollar to ¥158.69-70 per dollar. The yen was also sold in the New York market the previous night, falling to the mid-¥158 range. The move was driven by US CPI and ADP employment data coming in above market expectations. US long-term yields rose, and yen selling and dollar buying prevailed as the US-Japan interest-rate differential widened.
US CPI for October rose 0.4% month on month, above the market forecast of 0.3%, while core CPI rose 0.3%, exceeding the forecast of 0.2%. This strengthened expectations of another Fed rate hike, and the probability of a 0.25% hike in December rose to approximately 90% on FedWatch. The 2-year Treasury yield surged, while longer-term yields also rose.
The hawkish stance of senior Fed officials also influenced the market. Fed Governor Waller said that a further policy response would be necessary if core CPI rose at least 0.3% month on month, and expressed the view that a 0.5% rate hike should be considered. Dallas Fed President Logan also argued for a prompt rate hike.
Oil futures and the dollar's overall strength also affected the yen. In the New York market, the dollar rose broadly against major currencies. The yen was weak against the euro, while its decline against the dollar was particularly pronounced. Going forward, comments from senior Fed officials and additional economic indicators ahead of the December FOMC announcement will be the focus.