USD/JPY drops to fresh daily low, closer to mid-134.00s post-US CPI

• USD/JPY retreats sharply from a one-week high amid the emergence of fresh USD selling.
• The softer headline US CPI print reaffirms dovish Fed expectations and weighs on the USD.
• A positive risk tone could undermine the safe-haven JPY and help limit losses for the pair.

The USD/JPY pair attracts some sellers in the vicinity of mid-135.00s, or a one-week high touched this Wednesday and the intraday descent picks up pace following the release of the US consumer inflation figures. Spot prices drop to a fresh daily low during the early North American session and currently trade just above the mid-134.00s, down over 0.50% for the day.

The US Dollar (USD) weakens across the board after the US Bureau of Labor Statistics reported that inflation in the US, as measured by the Consumer Price Index (CPI) rose 0.4% in April and the yearly rate eased to 4.9% from 5%. Meanwhile, the Core CPI, which excludes volatile food and energy prices, matched expectations, coming in at 0.4% and 5.5%, respectively, Nevertheless, the data reaffirms market bets for an imminent pause in the Federal Reserve's (Fed) year-long rate-hiking cycle, which weighs heavily on the Greenback and exerts downward pressure on the USD/JPY pair.

That said, the Bank of Japan's (BoJ) dovish stance, along with a generally positive tone around the equity markets, could undermine the safe-haven Japanese Yen (JPY) and help limit losses for the USD/JPY pair. It is worth recalling that BoJ Governor Kazuo Ueda,  speaking in parliament earlier today, said that it was too early to discuss specific plans for an exit from the massive stimulus programme. This, in turn, might hold back bearish traders from placing aggressive bets and act as a tailwind for spot prices, making it prudent to wait for strong follow-through selling before positioning for further losses.

Technical levels to watch