• USD/JPY pulls back from YTD high as Japan’s Finance Minister Suzuka warns of excessive yen weakness.
  • A slowdown in U.S. Core PCE, the Fed’s preferred gauge of inflation, is dampening investors’ expectations of two Fed rate hikes.
  • Despite Tokyo Core CPI exceeding the BoJ’s 2% trailing target, the BoJ reaffirms its commitment to ultra-loose monetary policy.

USD/JPY is retreating from a year-to-date (YTD) high of 145.07 as Japanese authorities warned that “excessive yen weakness” could prompt action from Japanese authorities. This spooked buyers in USD/JPY, who have been riding a rally that has seen the Japanese yen (JPY) depreciate 13% over the year. USD/JPY is trading at 144.28, down 0.31% as Wall Street closes.

Japanese authorities halt USD/JPY rally; milder US inflation weighed on the US dollar

The US dollar (USD) remains under pressure from the Commerce Department’s inflation report. The US central bank (Fed) preferred measure of inflation, the core PC eased from highs of around 4.7% year-on-year to 4.6% in May, while core PCE slowed at a faster pace, with the monthly data slowing to 0.1% from April’s 0.4% and the annual figure to 3.8% from 4, 4%.

US Treasury yields fell after the data as investors see less likely Fed will raise rates twice as indicated by the dot. Meanwhile, a July Fed hike of 25 basis points remains priced in, as the CME FedWatch Tool rate shows at 84.3%.

Consequently, the US Dollar indexa basket of similar products that tracks its value against the dollar fell 0.41% to 102.933.

Other data was witnessed by Chicago PMI it improves to 41.5 but remains in contraction territory. The University of Michigan (UoM) revealed the latest June poll with consumer sentiment hitting the 64.4 mark, above a preliminary reading of 63.9.

On the Japanese front, Tokyo Core CPI, a critical gauge of inflation, edged up slightly in June, with the index reaching 3.2% year-on-year growth from 3.1% in May. Although CPI was above the Bank of Japan’s (BoJ) 2% target for the thirteen months, the BoJ remains committed to maintaining its ultra-loose monetary policy. BoJ Governor Kazuo Ueda said the bank would maintain the current path if inflation does not prove to be sustainable in the long term.

Given this situation, USD/JPY was set to continue to rise. Still, Japanese Finance Minister Suzuki’s comments that Tokyo “will respond adequately if the moves are excessive” limited USD/JPY progress.

USD/JPY Technical Levels

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