Later in the session on Friday, the US Personal Income and Outlays Report will be the main event. Economists expect the Core PCE Price Index to rise 2.9% year-on-year in July after June’s 2.8% increase.
A sharper increase in the Fed’s inflation measure could sink bets on a September Fed rate cut, boosting US dollar demand. A more hawkish Fed policy stance may send USD/JPY above the 50-day Exponential Moving Average (EMA) toward the 200-day EMA. A break above the 200-day EMA may pave the way to the 149.358 resistance level.
However, softer inflation could fuel bets on multiple Fed rate cuts, potentially pushing the pair below 146. If breached, 145 would be the next key support level.
Forex markets currently face the prospect of the BoJ and the Fed diverging on monetary policy, potentially triggering USD/JPY volatility.
The Kobeissi Letter recently compared Japan and the US inflation backdrop, stating:
“Japan’s Core CPI inflation is now above US Core CPI inflation for the first time in 48 years, excluding periods of sales tax hikes. Japan’s Core CPI was 3.4% in July, one of the highest readings since the 1980s. By comparison, US core CPI inflation was 3.1%. Japan’s core inflation has now been above the Bank of Japan’s 2% target for 40 consecutive months.”
USD/JPY: Key Scenarios to Watch
Bearish USD/JPY Scenario: Hawkish BoJ guidance, softer US inflation, or dovish Fed signals could drag USD/JPY toward 145.
Bullish USD/JPY Scenario: Dovish BoJ cues, hotter-than-expected US inflation, or hawkish Fed rhetoric may send the pair toward the 150.
