USD/JPY and 145.50 in the Hands of Tokyo and US Inflation

Highlights

• The USD/JPY will make a move this morning as the market focus briefly turns to the Japanese economy.
• Tokyo inflation numbers will be the focal point. Hotter-than-expected numbers could force the BoJ to tweak its ultra-loose monetary policy stance.
• However, the US Core PCE Price Index and personal spending numbers will be the key drivers.

It is a busy start to the Friday session for the USD/JPY. After better-than-expected retail sales figures on Thursday, the market focus will turn to Tokyo inflation numbers this morning.

Hotter-than-expected inflation figures would pressure the Bank of Japan to tweak its ultra-loose monetary policy stance. The markets expect the BoJ to tweak the 0% cap on the 10-year bond yield that falls under the Bank’s yield curve control (YCC) policy.

Economists forecast the Tokyo core annual inflation rate to rise from 3.2% to 3.3% in June.

Other stats include the jobs/application ratio and industrial production numbers. However, the numbers will likely take a back seat.

Later this morning, private sector PMI numbers from China will also move the dial. A more marked contraction across the manufacturing sector would weigh on riskier assets and the USD/JPY.

The US Session

It is a busy US economic calendar with the all-important US Core PCE Price Index numbers in focus. Sticky inflation or an unexpected pickup in US inflationary pressure would support Fed Chair Powell’s consecutive rate hike warning.

Other stats include personal spending/income and finalized consumer sentiment figures that need consideration. We expect the spending and income figures to garner more interest, however.

After Fed Chair Powell’s hawkish comments and the US economic indicators from Thursday, the markets cemented a July rate hike ahead of today’s inflation numbers. Investors also raised their bets on a September move.

According to the CME FedWatch Tool, the probability of a 25-basis point July Fed rate hike stood at 89.3% versus 81.8% on Wednesday. Significantly, the chances of the Fed lifting rates to 5.75% in September stood at 26.8%, up from 16.4% on Wednesday.

USD/JPY Price Action

This morning, the USD/JPY was flat at 144.739. A mixed start to the day saw the USD/JPY rise to an early high of 144.798 before falling to a low of 144.717.

Technical Indicators

Looking at the EMAs and the 4-hourly chart, the EMAs sent bullish signals. The USD/JPY sat above the 50-day EMA (143.230). The 50-day pulled further away from the 100-day EMA, with the 100-day EMA widening from the 200-day EMA, delivering bullish signals.

A hold above the Major Support Levels and the 50-day EMA (143.230) would support a breakout from R1 (145.044) to target R2 (145.352). However, a fall through S1 (144.280) would bring S2 (143.824) and the 50-day EMA (143.230) into view. A slide through the 50-day EMA would signal a near-term bullish trend reversal.

Resistance & Support Levels