USDJPY eyes more weakness below 140.00 ahead of US long-term inflation expectations

• USDJPY is expected to display more downside after dropping below the critical support of 140.00.
• Fed’s long-term inflation expectations are well-anchored at 2%, therefore a rise in data could trigger volatility.
• Tokyo investors will shift their focus toward Tuesday’s GDP data.

The USDJPY pair is facing barricades around 142.00 after a mild recovery in the early Tokyo session. The asset is expected to display further downside after dropping below the crucial support of 140.00. An optimism risk profile is extremely solid after a slowdown in mounting US inflationary pressures.

This has vanished bets over the continuation of a bigger rate hike cycle by the Federal Reserve (Fed) to a great extent. As per the CME FedWatch tool, the chances of a rate hike by 75 basis points (bps) for the fifth time in the December meeting have dropped below 15%. The impact of the decline in hawkish Fed bets is clearly visible in the US dollar index (DXY) and returns from the US government bonds.

The DXY is struggling to overstep the immediate hurdle of 108.00. And, the 10-year US Treasury yields are hovering around 3.81%.

A significant drop in the inflationary pressures banks upon a fall in consumer spending and easing gasoline prices. In the Fed’s Beige Book, consumer spending for the third quarter dropped to 1.4% from the prior release of 2.0% due to lower earnings by the households and the burden of inflation-adjusted payouts. A decline in consumer spending is a leading indicator for short-term inflation expectations, which indicates a slowdown in price growth ahead.

US markets will be closed on Friday on account of Veterans Day, during which currency traders will focus on the release of long-term US inflation expectations. Previously, the economic data landed at 2.9%. The Fed is keen to keep the long-term inflation expectations anchored around 2%. And, a rise in the economic data could fade the positive market sentiment.

On the Tokyo front, investors have shifted their focus toward the Gross Domestic Product (GDP) data, which will release on Tuesday. The economic data is seen lower at 0.3% vs. the prior release of 0.9% on a quarterly basis while the annualized figure may decline to 1.1% from the former release of 3.5%.