Later in the session, the highly influential US Personal Income and Outlays Report will influence US dollar demand and USD/JPY trends. Economists expect the Core PCE Price Index to rise 2.5% year-on-year in April, down from 2.6% in March.
Softer inflation may raise bets on a Q3 Fed rate cut, sending USD/JPY toward the May 27 low of 142.108. Conversely, a higher inflation reading could signal a more hawkish Fed stance, potentially driving the pair toward the May 20 high of 145.507.
Beyond inflation, investors should consider personal income and spending trends. Rising income and spending may fuel inflationary pressures, delaying Fed rate cuts. On the other hand, weakening income and spending could lead to softer inflation, supporting a more dovish Fed rate path.
Other stats include finalized Michigan Consumer Sentiment and Inflation Expectation numbers. However, unless there is a material deviation from the preliminary data, these will likely play second fiddle to the Personal Income and Outlays Report.
USD/JPY: Key Scenarios to Watch
- Bearish USD/JPY Scenario: Renewed trade tensions, hawkish BoJ signals, softer US inflation, or dovish Fed rhetoric could drag USD/JPY below 142.108 toward 140.
- Bullish USD/JPY Scenario: Easing trade friction, a dovish BoJ, hotter US inflation, or hawkish Fed signals may lift the pair toward 145.507.
