- USD/JPY is likely to contain the immediate hurdle of 135.00 despite a subdued DXY.
- A spree of decline in the US inflation is desired to conclude policy tightening.
- BOJ policymakers are focusing on elevating Labor Cost to keep the inflation rate above 2%.
The USD/JPY pair is eyeing a break above the immediate hurdle of 135.00 despite a lackluster performance by the US dollar index in the Asian session. On a wider note, the asset is displaying topsy-turvy moves in a range of 134.35-135.58 after a vertical upside move from a low near 133.00. It is worth noting that the USD/JPY pair is displaying upside momentum despite a subdued performance by the DXY in the Tokyo session. This indicates that the yen bulls are extremely weaker.
The DXY has auctioned in a narrow range of 106.33-106.41 from the opening. This indicates an inventory distribution, which will be followed by a sheer movement on either side. Considering the upcoming event of Wednesday’s US inflation, an upside break carries more bets. The estimates for price pressures in the US economy have trimmed to 8.7% vs. 9.1% reported in July.
A downside shift in the US Consumer Price Index (CPI) might bring a sigh of relief for US households and the Federal Reserve (Fed). Exhaustion signs in US inflation will infuse fresh blood into the DXY bears. However, for a neutral stance by Fed chair Jerome Powell, a spree of the declining inflation rate is desired.
On the Tokyo front, the Bank of Japan (BOJ) policymakers are worried over the subdued Labor Cost Index as higher wage prices are critical to keeping the inflation rate above 2%. The cumbersome task of keeping the inflation rate above the desired levels despite the prolonged monetary policy easing will keep the yen bulls on the back foot. This week, the spotlight will entirely remain on the US CPI and a higher print than the prior one may force the USD/JPY pair to recapture its all-time high near 139.40.
In a cabinet reshuffle this week Japanese Prime Minister Fumio Kishida is set to retain Finance Minister Shunichi Suzuki as local media said his current foreign minister would also stay on.
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