USD/JPY slides below 127.00 on mixed Tokyo CPI, focus on US PCE Inflation

• USD/JPY takes offers to renew intraday low, eyes consecutive third weekly loss.
• Tokyo CPI came in softer but core readings surprised with upbeat prints.
• Market sentiment dwindles amid anxiety ahead of the Fed’s preferred inflation gauge.

USD/JPY extends the three-week-old retreat from a multi-year high as bears flirt with 126.90 amid mixed concerns during Friday’s Asian session. The metal’s latest weakness could also be linked to the firmer prints of the Tokyo core cpi data, as well as the market’s wait for the Fed’s preferred inflation gauge.

Tokyo Consumer Price Index (CPI) for May eased to 2.4% YoY versus 2.7% expected and 2.5% prior. However, the Tokyo CPI ex Food, Energy rose past 0.4% market consensus and 0.8% previous readouts to 0.9% YoY. Further, Tokyo CPI ex Fresh Food reprints 1.9% figures versus 2.0% expected.

Following that Japan inflation data release, Bank of Japan (BOJ) Governor Haruhiko Kuroda mentioned, per Reuters, “Unless energy prices fall considerably, japan's core cpi is likely to remain around 2% for the next 12 months.”

His comments raise doubts about the BOJ’s easy money policies and strengthen the yen prices of late.

On the other hand, the US preliminary Q1 2022 Annualized GDP eased to -1.5%, below -1.4% prior and -1.3% forecasts, whereas the Pending Home Sales slumped in April, to -3.9% versus -2.0% forecast.

Softer US data weighed on the US dollar as market participants welcomed the lack of uncertainty over the Fed’s next move with zeal, showing confidence in the 50 bps rate hikes during the next two meetings. Also weighing on the US dollar were the firmer prints of the US equities and downbeat US Treasury yields.

It’s worth mentioning that the fears of global recession, mainly due to China’s covid-led lockdowns and the Russia-Ukraine crisis, not to forget the Sino-American tussles, also exert downside pressure on the risk appetite and the USD/JPY prices.

That said, Wall Street benchmarks portrayed the second day of gains whereas the US 10-year Treasury yields remained indecisive around 2.75%. Further, S&P 500 Futures begins Friday with mild losses around 4,045, down 0.25% intraday at the latest.

Moving on, Fedspeak and the geopolitical headlines concerning China and Russia will be crucial for short-term USD/JPY moves. Above all, the US Core Personal Consumption Expenditure (PCE) Price Index for April, expected at 4.9% YoY versus 5.2% prior, will be crucial amid the latest run of softer US data weighing on the greenback.

Read: US Core PCE Preview: Why there is room for a dollar-lifting upside surprise

Technical analysis

Although a three-week-old descending resistance line restricts immediate USD/JPY moves around 127.85, the 50-DMA level surrounding 126.55 appears a tough nut to crack for the short-term sellers.