USD/JPY: Yen dips as Japan's inflation hovers at 2-year lows


  • USD/JPY is mildly bid in Asia on rising dovish BOJ expectation.
  • Japan's core inflation remained at two-year lows in July.
  • Sell-off likely if Federal Reserve's Powell sets the stage for a September rate cut.

The Japanese Yen is losing altitude in Asia, possibly due to dismal Japanese inflation data and the resulting rise in the dovish Bank of Japan (BOJ) expectations.

Japan's core consumer price index (CPI), which includes oil products but excludes fresh food prices, rose 0.6% in July year-on-year, as expected, matching the previous month's gain, which was the slowest pace since July 2017. Back then, the core CPI had climbed by 0.5%.

The data will likely add to the pressure on the BOJ to ease further. The Yen has already come under pressure in the last few minutes – USD/JPY is currently trading at 106.50, having hit a low of 106.38 earlier today.

The central bank last month expressed willingness to expand stimulus if a global slowdown derails the progress toward the 2% inflation target.

Focus on Fed's Powell

Federal Reserve Chairman Jerome Powell's speech at the Jackson Hole Symposium later today will be closely watched by the markets.

Investors believe Powell will use the event to set the stage for a 25 basis point rate cut in September.

The USD/JPY pair may find acceptance below 106.00 if Powell sounds dovish, making a U-turn from his statement at the July 31 meeting that the policy is not on a preset easing path.

On the other hand, if Powell remains non-committal, then the US Dollar will likely rise across the board.

Pivot levels

    1. R3 107.05
    2. R2 106.85
    3. R1 106.65
  1. PP 106.45
    1. S1 106.24
    2. S2 106.04
    3. S3 105.84

 

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