FX Empire – Japan Annual Inflation
Economists Flag Easing Food Price Trends
Producer prices rose 2.9% YoY in June, down from 3.3% in May, signaling a softer inflation outlook. The USD/JPY pair climbed higher in response to the numbers. East Asia Econ commented on last week’s numbers, stating:
“Japan – goods prices starting to reverse. Data today show more feed through into PPI from the easing of import prices. Weekly rice prices have also dropped again. These trends lower goods price inflation but will boost household spending power. At the same time, the sharp fall in auto export prices shows the negative impact of tariffs.”
USD/JPY Outlook: Trade Developments, Economic Indicators, and the BoJ
Bullish Yen Scenario: Strong Japanese data, hawkish BoJ signals, or a US-Japan trade deal could push USD/JPY toward 145.
Yen Carry Trade Unwind Risks: A USD/JPY drop below the September 2024 low of 139.576 could accelerate the Yen Carry Trade Unwind.
Bearish Yen Scenario: Weaker Japanese data, dovish BoJ rhetoric, or stalled US-Japan trade talks may drive the pair toward 150.
US Data to Dictate the Fed Rate Path and Dollar Demand
In the US, inflation, retail sales, labor market, and consumer sentiment data will influence the Fed rate path and appetite for the US dollar.
Key events include:
US CPI Report (July 15): Annual inflation rate forecast to rise from 2.4% in May to 2.6% in June.
Producer Prices (July 16): Forecast to increase 2.8% YoY in June, up from 2.6% in May.
Retail Sales (July 17): Forecast to rise 3.6% YoY in June after May’s 3.3% increase.
Initial Jobless Claims (July 10): Expected to drop from 227k (week ending July 5) to 225k (week ending July 12).
Michigan Consumer Sentiment (July 18): Forecast to rise from 60.7 in June to 61.5 in July.
Softer inflation, weaker retail sales, a spike in jobless claims, and a drop in sentiment may fuel Fed rate cut bets, weighing on US dollar demand. Conversely, hotter inflation, pickups in retail sales and sentiment, and lower jobless claims may signal a more hawkish Fed stance, boosting the US dollar.
Beyond the data, Fed speakers will drive US dollar and USD/JPY trends.
Potential Price Scenarios:
Bullish US Dollar Scenario: Strong US data, hawkish Fed rhetoric, and easing global trade tensions may drive USD/JPY toward 150.
Bearish US Dollar Scenario: Weak US data, dovish Fed cues, and escalating trade tensions could pull USD/JPY toward 145.
Short-term Forecast:
USD/JPY’s near-term outlook will hinge on trade developments, key economic data, and monetary policy guidance. Among these, trade developments will likely be the most influential in the week ahead.
USD/JPY Price Action
Daily Chart
On the daily chart, the USD/JPY trades above its 50-day Exponential Moving Average (EMA) while remaining below the 200-day EMA. The EMAs signal a bullish near-term bias but a bearish longer-term outlook.
A breakout above the 200-day EMA and 148 could pave the way to the 149.458 resistance level. Sustained buying pressure may bring the March high of 151.301 into play.
On the downside, a drop below the 50-day EMA and the crucial 145 support level could enable the bears to target 142.5, a crucial support level in May and early June.
The 14-day Relative Strength Index (RSI) sits at 63.06, indicating USD/JPY can climb to 150 before entering overbought territory (RSI > 70).
AloJapan.com