USD/JPY consolidates around 147.00 as investors await US PCE inflation data

USD/JPY trades sideways around 147.00 ahead of the US PCE inflation data for July.
Traders are increasingly confident that the Fed will cut interest rates in September.
Inflation in Japan grew at a moderate pace in August.

Sagar Dua FXStreet

The USD/JPY pair trades in a tight range around 147.00 during the European trading session on Friday. The pair wobbles as investors await key United States (US) Personal Consumption Expenditure Price Index (PCE) data for July, which will be published at 12:30 GMT.

At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, ticks up to near 98.00.

The Bureau of Economic Analysis (BEA) is expected to show that the core PCE inflation, which is the Federal Reserve’s (Fed) preferred inflation gauge, rose at an annualized pace of 2.9%, faster than 2.8% in June, with the monthly figure rising steadily by 0.3%.

Investors will pay close attention to the US inflation data as it will influence market expectations for the Fed’s monetary policy outlook. According to the CME FedWatch tool, there is an 85% chance that the Fed will reduce interest rates by 25 basis points (bps) to 4.00%-4.25% in the policy meeting in September.

In Friday’s session, investors will also focus on arguments in the legal battle between Fed Governor Lisa Cook and US President Donald Trump. On Thursday, Fed’s Cook filed a lawsuit against Trump for violating the federal law by removing her over mortgage allegations, whose hearing will be at 14:00 GMT.

In Japan, cooling inflationary pressures are undermining bets supporting one more interest rate hike by the Bank of Japan (BoJ) this year. Earlier in the day, the Statistics Bureau of Japan reported that the Tokyo headline Consumer Price Index (CPI) grew at a moderate pace of 2.5% on year in August against a 2.9% increase seen in July. In the same period, Tokyo CPI ex. Fresh Food rose by 2.5%, as expected, slower than the prior reading of 2.9%.

Economic Indicator

Tokyo CPI ex Fresh Food (YoY)

The Tokyo Consumer Price Index (CPI), released by the Statistics Bureau of Japan on a monthly basis, measures the price fluctuation of goods and services purchased by households in the Tokyo region excluding fresh food, whose prices often fluctuate depending on the weather. The index is widely considered as a leading indicator of Japan’s overall CPI as it is published weeks before the nationwide reading. The YoY reading compares prices in the reference month to the same month a year earlier. Generally, a high reading is seen as bullish for the Japanese Yen (JPY), while a low reading is seen as bearish.

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