USD/JPY Slumped after Soft US CPI, Sparking Fresh Intervention Speculation
USD/JPY Analysis
The pair gained nearly 15% in the first half of the year and extended its advance with 38-year highs last week. The rally is sustained, as the US Fed has adopted a higher-for-longer approach due to inflation persistence, strong economy and robust labor market. At the same time, its Japanese counterpart has started normalizing its ultra-loose stance, but does so slowly and remains accommodative.
However, recent US inflation reading have been encouraging and Thursday's soft CPI report confirmed the resumption of the disinflation trend, strengthening the case for a less restrictive monetary setting and market pricing for at least two rate cuts this year. Earlier in the week, Chair Powell had warned of the risks of reducing policy restraint "too late or too little" [1] in a nuanced shift that appeared to be laying the groundwork for a September pivot. On the other side of the Pacific, monetary normalization may be slow and cautious, but officials have pointed to less bond buying ahead and at least one more rate hike is reasonable within the year.
Thursday's inflation report sparked greenback selling and USD/JPY registered its biggest daily loss since May, sparking fresh speculation that Japanese authorities may have intervened again to support the ailing Yen. There has been no official acknowledgement so far, but the country's top diplomat stepped up his rhetoric according to Reuters. [2]
In any case, the shift in monetary policy dynamics can eventually weigh on the pair and fuel further losses. But for now the rate differential remains favorable and USD/JPY tries to stabilize and defend key technical levels. Above the EMA200 (black line), bulls are in control and have the ability to set higher highs (161.95).
Nikos Tzabouras
Senior Financial Editorial Writer
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. With extensive experience in market analysis and a strong foundation in international relations, he brings a unique perspective to financial markets. Nikos emphasizes not only technical analysis but also on fundamentals and the growing influence of geopolitics on financial trends.
As a Senior Financial Editorial Writer, he delivers comprehensive and forward-looking insights across a wide range of asset classes, including equities, commodities, and currencies. His work explores how macroeconomic events, political developments, and global policies impact market dynamics, providing readers with a deeper understanding of both short-term movements and long-term trends.
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