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- USD/JPY trades with a mild negative bias and is undermined by a combination of factors.
- Easing inflationary concerns temper Fed rate hike bets and prompt some USD profit-taking.
- Intervention fears lend support to the JPY and weigh on the pair ahead of the US PCE data.
The USD/JPY pair edges lower during the Asian session on Thursday, albeit it lacks follow-through and finds support ahead of the 161.50 level. Nevertheless, spot prices remain well within striking distance of a 40-year high as traders look forward to the US Personal Consumption Expenditures (PCE) Price Index for a fresh impetus.
The crucial inflation data will dictate the Federal Reserve’s (Fed) policy path, which, in turn, will play a key role in influencing the US Dollar (USD) price dynamics and determining the next leg of a directional move for the USD/JPY pair. In the meantime, the recent decline in Crude Oil prices has eased inflationary concerns, prompting traders to scale back their bets on Fed interest rate increases. This, in turn, triggers a modest USD pullback from its highest level since May 2025, touched on Wednesday, and acts as a headwind for the USD/JPY pair.
Apart from this, heightened speculation about joint US-Japan intervention offers some support to the Japanese Yen (JPY) and further caps the upside for the currency pair. In fact, Japan’s Finance Minister Satsuki Katayama and US Treasury Secretary Scott Bessent agreed to take steps on currencies if necessary. Also, Japan’s Chief Cabinet Secretary Minoru Kihara said on Tuesday that he will take appropriate action against the foreign exchange moves if needed. This, along with a hawkish Bank of Japan (BoJ), offers some respite to the JPY bulls.
In fact, the Summary of Opinions from the BoJ’s June meeting showed that policymakers debated mounting inflation risks, with some calling for faster interest rate increases to raise borrowing costs to near levels deemed neutral to the economy. Furthermore, BoJ board member Naoki Tamura said earlier today that it is important to push the policy rate closer to the neutral level, which is about 2%. This is still lower than the Fed’s 3.5% to 3.75% target rate, however, which keeps the JPY carry trade in play and helps limit the downside for the USD/JPY pair.
