USD/JPY gathers strength above 153.00 on potential US-China trade deal

• USD/JPY strengthens to near 153.15 in Monday’s early Asian session. 
• US and China agreed on a framework for trade deal ahead of the Trump-Xi meeting. 
• US CPI inflation rose 3.0% YoY in September, softer than expected. 

The USD/JPY pair extends the rally to around 153.15 during the early Asian session on Monday. The Japanese Yen (JPY) softens against the US Dollar (USD) amid improved risk sentiment as the US and China have agreed on the framework of a potential trade deal.  

Top US and Chinese economic officials on Sunday hashed out the framework of a trade deal for US President Donald Trump and Chinese President Xi Jinping to decide later on Thursday in South Korea. US Treasury Secretary Scott Bessent said that discussions on the sidelines of the ASEAN Summit in Kuala Lumpur had eliminated the threat of Trump’s 100% tariffs on Chinese imports starting November 1. 

Bessent further stated that he expects China to delay implementation of its rare earth minerals and magnets licensing regime by a year while the policy is reconsidered. Positive developments surrounding US-China trade negotiations boost the risk sentiment, which undermines the safe-haven currency like the JPY and creates a tailwind for the pair. 

Nonetheless, softer US inflation data might reinforce the Federal Reserve (Fed) rate cut bets and drag the Greenback lower. Data released by the US Bureau of Labor Statistics (BLS) on Friday showed that the US Consumer Price Index (CPI) rose 3.0% YoY in September, versus 2.9% prior. This reading came in below the market expectation of 3.1%.

On a monthly basis, the CPI increased 0.3% following the 0.4% rise seen in August, while the core CPI increased 0.2%, compared to the market consensus of 0.3%. On a yearly basis, the core CPI was up 3.0% in September.

The JPY weakens against the USD, even as core inflation in Japan accelerated in September for the first time since May. The report came ahead of the Bank of Japan’s (BoJ) policy meeting on Thursday, where the central bank is anticipated to keep the interest rates unchanged.