USD/JPY consolidates below 145.00 as US PCE inflation takes centre stage

• USD/JPY stays below 145.00 with US core PCE inflation on the horizon.
• Global market sentiment appears to be asset-specific.
• The BoJ is expected to raise interest rates again this year.

The USD/JPY pair trades sideways below the crucial resistance of 145.00 in Thursday’s European session. The asset struggles for direction as investors await the United States (US) Personal Consumption Expenditure inflation (PCE) report for July, which will be published on Friday.

Global market action appears to be asset-specific as risk-sensitive currencies have faced sharp selling pressure, while S&P 500 futures have posted significant gains in European trading hours. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, extends its recovery above 101.20.

The US PCE inflation is expected to drive the next move in the US Dollar (USD) as it would influence market speculation for the Federal Reserve’s (Fed) September policy meeting. According to the CME FedWatch tool, the Fed is certain to pivot to policy-normalization in September but traders remain split over the likely size of interest rate cuts. 30-day Federal Funds Futures pricing tool shows that the likelihood of a 50 basis points (bps) interest rate reduction is 34.5%, while the rest favors a 25 bps.

In today’s session, investors await revised estimates for Q2 Gross Domestic Product (GDP) and Initial Jobless Claims data for the week ending August 23. Investors will keenly watch the jobless claims data as the Fed is now more concerned about deteriorating labor market strength.

On the Japan front, firm expectations of more interest rate hikes by the Bank of Japan (BoJ) continue to support the Japanese Yen (JPY). On Wednesday, BoJ Deputy Governor Ryozo Himino said, "There is no change to our stance that we would adjust monetary easing if economic activity and prices are likely to meet projections."

Meanwhile, investors await the Tokyo Consumer Price Index (CPI) data for August, which will be published on Friday. The inflation report is expected to show that the CPI, excluding Fresh Food, grew steadily by 2.2%.