USD/JPY declines towards 140.00 amid weakness in USD Index, US Inflation in focus

• USD/JPY is aiming to extend the downside journey towards 140.00 amid a sell-off in the USD Index.
• US headline inflation is expected to show a significant cooldown and core CPI may deliver a moderate softening.
• Fed Mester conveyed the economy has shown more underlying strength than anticipated earlier this year.

The USD/JPY pair is declining toward the psychological support of 140.00 in the European session. The asset is facing a sheer sell-off following weak cues from the US Dollar Index (DXY). The USD Index has sharply corrected to near 101.70 as investors are anticipating that interest rates by the Federal Reserve (Fed) will sooner peak.

S&P500 futures are demonstrating choppy moves as investors are awaiting the release of the United States Consumer Price Index (CPI) data for further guidance. Also, the upcoming second-quarter result season has kept investors on tenterhooks. Investors are uncertain about corporate earnings due to higher interest rates from the Federal Reserve (Fed) and tight credit conditions by commercial banks.

Preliminary report shows that headline inflation will show a significant cooldown and core CPI will deliver a moderate softening. Core price pressures have turned out extremely critical for Fed policymakers as service inflation is not showing significant deceleration. Thanks to a strong labor market that is offering higher wages to land fresh talent and consistently propelling retail demand.

On Monday, Cleveland Fed President Loretta Mester, in a speech at the University of San Diego, cited that “The economy has shown more underlying strength than anticipated earlier this year, and inflation has remained stubbornly high, with progress on core inflation stalling,” as reported by Reuters.

On the Japanese Yen front, economists at Rabobank analyzed scenarios for the Bank of Japan’s (BoJ) July interest rate policy and cited that although steady policy appears to be the most likely outcome for the July policy meeting, it is widely expected to bring upgraded inflation forecasts and the market will continue to hope that the BoJ may offer some signal as to when YCC could be adjusted. Speculation of a possible tweak could allow the Japanese Yen some support ahead of the BoJ meeting this month.