The Japanese yen has dropped below the 150 yen per dollar mark, primarily driven by strong economic data from the U.S., which has led markets to reduce expectations for a rate cut by the Federal Reserve. This decline prompted Japanese currency officials to issue warnings about the yen’s volatility, resulting in a rebound on the 18th. However, some strategists predict that the yen may continue to weaken.

On October 17th, the yen depreciated by 0.4% to reach 150.21 yen against the dollar, marking the first drop below the key 150 mark since early August. This followed the release of robust U.S. retail sales figures for September and a rate cut by the European Central Bank.

Jun Mimura, Japan’s top currency official, warned on the 18th that the foreign exchange market was experiencing significant one-sided volatility. On the same day, the yen hit a high of 149.59 yen to the dollar, rebounding by 0.4% during the session.

Analysts monitoring the yen suggest that strong U.S. data may push the dollar/yen exchange rate down to as low as 160 in the future. Fumio Sasaki, chief strategist at Fukuoka Financial Group, noted that market expectations for a Fed rate cut might have been overly optimistic. He anticipates that as this outlook cools, the yen will gradually weaken, possibly reaching the 160 level by next year.

In a separate viewpoint, former Bank of Japan board member Takafumi Ueno expressed during a Bloomberg interview that if the yen were to further depreciate into the 150-155 yen range, it could prompt the Bank of Japan to raise rates earlier than expected. He attributes about 80-90% of the BOJ’s rate hike in July to a weak yen.

On the economic front, Japan released its September core consumer price index (CPI), excluding fresh food, which rose 2.4% year over year, down from 2.8% in August and the first easing observed since April. This decline was attributed to temporary subsidies aimed at curbing energy prices, yet it still exceeded market expectations of a 2.3% increase. The overall CPI year-on-year increase also softened to 2.5%.

The BOJ is particularly focused on the core-core CPI, which excludes fresh food and energy, rising 2.1% year over year in September, compared to 2% in August, indicating that underlying price pressures remain robust. The service sector prices, a key component for assessing price trends, rose 1.3% year over year in September, down from 1.4% in August, suggesting a moderate pace of cost pass-through from businesses.

The BOJ is set to announce its interest rate decision on October 31st, where it is expected to maintain the benchmark rate at 0.25%. However, the relatively weak yen may continue to exert inflationary pressure in Japan through increased import prices. Tohru Nishihama, head of Asia-Pacific economics at Dai-ichi Life, expects that Japan’s core-core CPI will likely hover around 2% until early next year, with the potential for another rate hike from the BOJ before the end of the year.