The USD/JPY currency pair has been in the spotlight recently as it dropped below the 135.0 level due to softer US CPI (Consumer Price Index) data. This event has caused a stir in the forex market, with traders and investors closely monitoring the situation.
The CPI is a measure of the average change in prices over time of goods and services purchased by households. It is a key indicator of inflation, which is an important factor in determining the value of a currency. When inflation is high, the value of a currency tends to decrease, and when it is low, the value tends to increase.
In the case of the USD/JPY currency pair, the recent drop below 135.0 was caused by a lower-than-expected US CPI reading. The data showed that inflation in the US had slowed down in August, with the CPI rising by only 0.3% compared to the previous month. This was below market expectations of a 0.4% increase.
The softer CPI data has raised concerns among investors that the US Federal Reserve may delay its plans to taper its bond-buying program. The Fed has been buying $120 billion worth of bonds each month to support the economy during the pandemic. However, it has signaled that it may start reducing these purchases later this year if the economy continues to recover.
If the Fed delays its tapering plans, it could lead to a weaker US dollar, which would cause the USD/JPY currency pair to drop further. This is because a weaker dollar makes Japanese yen more attractive to investors, leading to an increase in demand for yen and a decrease in demand for dollars.
Another factor that could contribute to the drop in the USD/JPY currency pair is the ongoing COVID-19 pandemic. Japan has recently extended its state of emergency due to a surge in cases, which could lead to a slowdown in economic activity and a decrease in demand for yen.
In conclusion, the recent drop in the USD/JPY currency pair below 135.0 was caused by softer US CPI data, which raised concerns about the Fed’s tapering plans. The ongoing COVID-19 pandemic in Japan could also contribute to the drop in the currency pair. Traders and investors will continue to monitor the situation closely to determine the future direction of the USD/JPY currency pair.
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