Japanese Yen remains muted following the latest inflation data

• The Japanese Yen remains silent after the release of mixed inflation data on Friday.
• Japan's National Consumer Price Index held steady at 2.8% in June, remaining at the highest level since February.
• The US Dollar extends gains despite the dovish sentiment surrounding the Fed’s policy stance.

The Japanese Yen (JPY) remains stable following the release of the latest inflation data on Friday. Japan's National Consumer Price Index (CPI) for June held steady at 2.8%, matching the previous month's figure and remaining at the highest level since February. Meanwhile, Core CPI inflation rose to 2.6%, slightly above the previous reading of 2.5% but just below the consensus estimate of 2.7%.

Japan’s 10-year government bond yield trades at approximately 1.04%, recovering from three-week lows. This rebound follows Digital Minister Kono Taro's statement to Bloomberg that the Bank of Japan (BoJ) should raise interest rates again in July to support the Yen. Additionally, the BoJ is anticipated to show its bond purchase tapering plans this month.

The USD/JPY pair has retreated by as much as 4% from a 38-year high of 161.95 during July. Analysts attribute this decline to interventions by Japanese authorities. Traders remain vigilant about the possibility of further interventions.

The US Dollar receives support from a slight improvement in US Treasury yields. However, the greenback may limit its upside as soft labor data bolster market expectations of a September rate-cut decision by the Federal Reserve (Fed).

Daily Digest Market Movers: Japanese Yen holds ground amid intervention threat

• Japan’s CPI inflation, less both food and energy prices, ticks higher in June and grew 2.2% YoY rate from the previous 2.1%.
• US Initial Jobless Claims increased more than expected, data showed on Thursday, adding 243K new unemployment benefits seekers for the week ended July 12 compared to the expected 230K, and rising above the previous week’s revised 223K.
• Japan's Merchandise Trade Balance Total for the year ended in June climbed to a surplus of ¥224 billion against the expected deficit of ¥240 billion and ¥-1,220.1 billion prior.
• On Wednesday, Fed Governor Christopher Waller said that the US central bank is ‘getting closer’ to an interest rate cut. Meanwhile, Richmond Fed President Thomas Barkin stated that easing in inflation had begun to broaden and he would like to see it continue,” per Reuters.
• Reuters cited Kyodo News, reporting that Japan's top currency diplomat Masato Kanda said on Wednesday he would have to respond if speculators cause "excessive" moves in the currency market and that there was no limit to how often authorities could intervene.
• During an interview with Bloomberg News on Tuesday, Donald Trump cautioned Fed Chair Jerome Powell against cutting US interest rates before November’s presidential vote. However, Trump also indicated that if re-elected, he would allow Powell to complete his term if he continued to "do the right thing" at the Federal Reserve.
• Data released on Tuesday showed that the Bank of Japan (BoJ) entered the foreign exchange market on consecutive trading days last Thursday and Friday. The current account balance data from the BoJ, released on Tuesday, indicates an anticipated liquidity drain of approximately ¥2.74 trillion ($17.3 billion) from the financial system on Wednesday due to various government sector transactions, according to Nikkei Asia.
• Fed Chair Jerome Powell mentioned earlier this week that the three US inflation readings of this year "add somewhat to confidence" that inflation is on course to meet the Fed’s target sustainably, suggesting that a shift to interest rate cuts may not be far off.

Technical Analysis: USD/JPY hovers around 157.50

USD/JPY trades around 157.40 on Friday. The daily chart analysis indicates that the USD/JPY pair is below its 9-day Exponential Moving Average (EMA), suggesting short-term downward momentum. This implies waiting for signs of a trend reversal before buying. Additionally, the 14-day Relative Strength Index (RSI) is below 50, confirming a bearish bias.

The pair could find key support around June's low of 154.55. A break below this level could push the pair towards May’s low of 151.86.

On the upside, immediate resistance is noted around the 9-day EMA at 158.25. If the pair breaks above this level, it could revisit the pullback resistance around the psychological level of 162.00.

USD/JPY: Daily Chart