USD/JPY retreats from 145.00 YTD high as Japanese authorities signal intervention, falling US yields

The USD/JPY pulls back from YTD high as Japan’s Finance Minister Suzuky warns against excessive yen depreciation.
The slowdown in the US Core PCE, the Fed’s preferred inflation indicator, reduces investor expectations for a double Fed rate hike.
Despite Tokyo Core CPI exceeding the BoJ’s 2% target for thirteen months, the BoJ reaffirms its commitment to ultra-loose monetary policy.

USD/JPY retreats from a year-to-date (YTD) high at 145.07 as Japanese authorities warned that “excessive yen weakening” could trigger action by Japanese authorities. That spooked USD/JPY buyers, which have been riding a rally that witnessed a 13% depreciation of the Japanese Yen (JPY) during the year. The USD/JPY is trading at 144.28, down 0.31%, as Wall Street closes.

Japanese authorities halt the USD/JPY rally; softer US inflation weighed on the US Dollar

The US Dollar (USD) remains pressured by an inflation report released by the Department of Commerce. The US Federal Reserve (Fed) preferred gauge for inflation, the Core PCE eased from highs around 4.7% YoY to 4.6% in May, while headline PCE decelerated at a faster pace, with monthly data slowing to 0.1% from 0.4% in April, and annually based numbers at 3.8% from 4.4%.

US Treasury bond yields tumbled after the data as investors see less likely the Fed will increase rates twice, as the dot-plot portrays. Meanwhile, the Fed’s 25 bps increase in July remains priced in, as shown by the CME FedWatch Tool odds at 84.3%.

Consequently, the US Dollar Index, a basket of peers that tracks its value against the greenback, dropped 0.41%, down to 102.933.

Other data witnessed the Chicago PMI improving to 41.5 but remaining in contractionary territory. The University of Michigan (UoM) revealed June’s latest poll, with Consumer Sentiment hitting the 64.4 threshold, above the preliminary reading of 63.9.

On the Japanese front, the Tokyo Core CPI, a critical inflation gauge, edged higher in June, with the index coming at 3.2% YoY, up from 3.1% in May. Even though the CPI stood higher than the Bank of Japan’s (BoJ) 2% target for the thirteen-month, the BoJ remains committed to keeping its ultra-loose monetary policy stance. The BoJ Governor Kazuo Ueda stated the bank would keep its current path unless inflation proves to be sustainable over the long term.

Given the backdrop, the USD/JPY was set to continue to rally. Still, Japanese Finance Minister Suzuky’s comments that Tokyo “would respond appropriately if the moves become excessive” capped the USD/JPY advancement.