USD/JPY slips from yearly top to sub-145.00 on Japan intervention fears, US PCE inflation eyed

• USD/JPY keeps running the play of refreshing yearly top and then retreating.
• Japan inflation, Industrial Production ease, Unemployment Rate remains intact.
• Japanese officials keep suggesting market intervention to defend Yen at multi-month top.
• Hawkish Fed versus dovish BoJ play favors pair buyers ahead of US Core PCE Price Index.

USD/JPY retreats from the yearly top, marked earlier in the day, as the market fears Japanese intervention to defend the Yen amid early Friday. That said, the risk-barometer pair rose to a fresh high since November 2022 after mostly downbeat Japan data. However, comments from Tokyo officials and a cautious mood ahead of the key US data triggered the pair’s retreat from 145.07.

That said, Tokyo Consumer Price Index (CPI) eased to 3.1% YoY in June versus 3.8% expected and 3.2% prior whereas the preliminary readings of May’s Industrial Production slumped to -1.6% MoM from 0.7% prior and -1.0% market forecasts. It’s worth noting that the yearly Industrial Production figures came in upbeat, to 4.7% versus -0.7% prior while the Unemployment Rate for June remains unchanged at 2.6%.

With the mostly downbeat data and easing inflation pressure, dovish comments from Bank of Japan (BOJ) Deputy Governor Ryozo Himino can be justified, which in turn suggests prolonged easy-money policies at the BoJ and propel the USD/JPY price. “We're not seeing any sign of risk that Japan would experience the kind of high inflation seen in the United States and Europe but the economy is a living thing,” said BoJ’s Himino.

On the contrary, comments from Japanese Finance Minister Shunichi Suzuki seemed to have fueled the fears of Japan’s intervention in the currency markets to defend the Yen. “Sharp, one-sided moves seen in FX market,” said the policymaker while adding, “Will respond appropriately if FX moves become excessive.”

On the other hand, hawkish Federal Reserve (Fed) comments and upbeat US data keep the US Dollar on the bull’s radar, especially amid the firmer US Treasury bond yields. That said, Fed Chair Jerome Powell advocated for two more rate hikes in 2023 while Atlanta Federal Reserve President Raphael Bostic flashed mixed signals but stayed hawkish overall.

It should be noted that the final readings of the Gross Domestic Product (GDP) Annualized, mostly known as the Real GDP and the Weekly Initial Jobless Claims impressed US Dollar bulls and favored the market’s optimism the previous day.

While portraying the mood, the Wall Street benchmarks print gains and S&P500 Futures also mark a minor upside of late. That said, the US 10-year and two-year Treasury bond yields seesaw at the highest levels since early March, marked the previous day.

Moving on, clues for Japan’s market intervention will be closely observed before the Federal Reserve’s (Fed) favorite inflation gauge, namely the US Core Personal Consumption Expenditure (PCE) Price Index, for May, will be in the spotlight.  It should be noted that the US Core PCE Price Index is likely to remain static at 0.4% MoM and 4.7% YoY, which in turn may allow the Fed to keep its hawkish bias and fuel the USD/JPY.

Technical analysis

A 13-day-old bullish channel keeps USD/JPY buyers hopeful till the quote stays between 145.75 and 143.85. It’s worth noting, however, that the overbought RSI offers intermediate corrections on the firmer prices.