The Japanese Yen barely moves as a Bank of Japan deputy talks up inflation risk

The Bank of Japan (BoJ) has raised its rate twice this year, to 1.25% in September, with core inflation below its 2% target in each of the seven months to August. USD/JPY trades near 158.00 and has held between 157.50 and 159.00 for 12 sessions. BoJ Deputy Governor Himino said on Wednesday that underlying inflation is almost at 2% and that the risks to prices lean higher, and the pair stayed inside the same range.

Deputy Governor Himino warned about moving too late, eight weeks before the next likely move

Deputy Governor Himino said upside risks to inflation remain high and that adjusting policy too late could let them materialise. He described financial conditions as still accommodative, with real interest rates low and bank lending growing quickly. The Yen gained a little on the remarks and gave it back inside Wednesday's range.

Kyodo expects the BoJ to hold at 1.25% when it decides on October 30, and swaps price a hike for December 18 at about 75%-80%. Japan's September trade deficit came in at ¥536.6 billion, about three times the ¥181 billion forecast, with exports up 16.7% from a year earlier against a 20.1% forecast. A deficit that size is Yen that has to be sold to pay for imports, whatever Deputy Governor Himino says about inflation.

The Yen is held between a rate gap and a finance ministry

Japan's Ministry of Finance bought ¥11.74 trillion of Yen between April 28 and May 27, and in late July it acted jointly with the US Treasury after USD/JPY went above 160.00. Finance Minister Katayama renewed his warnings on October 15 after US inflation came in hot, and USD/JPY hasn't traded above 159.00 since.

That leaves the pair in a box. A Treasury 10-year near 5.1%, against a Japanese 10-year that reached about 3.1% on October 7 and was back near 2.9% by October 16, keeps USD/JPY from falling far, and the threat of another round of buying keeps it from rising far. Finance Minister Katayama doesn't name an intervention level, and the market has fixed on the one USD/JPY crossed before the last intervention.

A 2.1% core reading would clear the target with electricity still subsidised

Japan's national Consumer Price Index (CPI) for September comes at 23:30 GMT on Thursday, with core inflation excluding fresh food forecast at 2.1% after 1.7%. Headline inflation was 1.9% in August, and the measure excluding food and energy was also 1.9%. Electricity prices fell 2.4% from a year earlier in August as government energy subsidies took effect, which is part of why the core rate stayed under 2% through both of the BoJ's hikes.

The BoJ's September hike passed 7-2, with the two dissenters arguing that inflation was still below 2%. A reading of 2.1% would take that argument away a month after it was made and a week before the next decision.

Even so, a strong figure would firm the December hike rather than bring one forward to October 30, so it may do less for the Yen than the headline suggests. The University of Michigan survey at 14:00 GMT on Friday is forecast to show US households expecting 4.7% inflation over the next year and 3.5% over five, and US yields are what keep USD/JPY closer to 160.00 than to 155.00.

The Yen's levels inside the 157.50-159.00 range

Resistance: 158.50 stopped the highs on Monday and Tuesday. 159.00 has capped every session since October 6, with the October 14 high just under it, and 160.00 is the level USD/JPY broke before the July intervention.

Support: Wednesday's low stopped on the 200-day Exponential Moving Average (EMA), just under 158.00. 157.50 has held every session since October 6, and the October 2 low sits just under 157.00.

Bias: Long while 157.50 holds on a closing basis. The objectives are 158.50 and then 159.00. The daily Stochastic Relative Strength Index (Stoch RSI) has fallen to about 56 from above 80 in early October, so momentum is fading inside the range rather than building toward a break. A daily close below 157.50 ends the long.

USD/JPY daily chart