Yen gains as Trump rules out Iran strikes before the midterms

The 10-year Treasury yield ended near 5.22% after President Trump said on Truth Social that the US won't attack Iran before the midterm elections. It had touched its highest since 2002 on Wednesday.

Trump called the talks with Tehran productive and kept the US blockade in place, and Brent fell within minutes on a promise that runs out on November 3. Cheaper oil could mean less US inflation and fewer reasons for Fed hikes.

USD/JPY moves with the gap between US and Japanese rates, because that gap is the extra income from borrowing Yen to hold Dollars. The Fed's rate, 3.75%-4.00%, is 2.50-2.75 percentage points above the 1.25% set by the Bank of Japan (BoJ), and lower US yields shrink that income.

Two dips came close to 157.50 on Thursday, the first on talk of Japanese intervention and the second in the bars after the statement, and both stopped above Monday's low. The second came from a high just under 158.50, below Wednesday's, and fell through the 200-day Exponential Moving Average (EMA) just above 157.50.

St. Louis Fed President Musalem then said in New York that rates should rise over the next six to nine months, and USD/JPY recovered about a third of the drop. It closed just under 158.00, between the 200-day EMA and the 50-day EMA, and every close since October 1 has been within about 20 pips of 158.00.

Friday's University of Michigan (UoM) sentiment index is forecast to slip to 47.6 from 48.1, but the bigger test for US yields comes on Wednesday, October 14. US Consumer Price Index (CPI) inflation was 3.4% in August against 2.4% with food and energy stripped out, so those two categories add a full point to the headline rate and oil reaches both.

Retail sales and producer prices follow on Thursday, October 15, the same day BoJ board member Koeda speaks.

A firm core reading could add to Fed hike bets and send USD/JPY back toward the September 24 high near 159.00, while a soft one may keep its closes clustered near 158.00.

USD/JPY daily chart