USD/JPY slides further to 142.50 on Ishiba’s victory in PM contest

• USD/JPY falls further to 142.50 on multiple headwinds.
• Japan Ishiba’s victory in PM elections has strengthened the Japanese Yen.
• Cooling US inflationary pressures have weighed on the US Dollar.

The USD/JPY pair nosedives to near 142.50 in Friday’s North American session. The asset weakens as the victory of Japan's former defence minister Shigeru Ishiba in the Prime Ministerial contest has strengthened the Japanese Yen (JPY).

A sharp rally in the Yen suggests that the market participants expect the victory of new PM Shigeru Ishiba to be favorable for further interest rate hikes by the Bank of Japan (BoJ). In his previous comments, Ishiba told Reuters that the central bank was "on the right policy track" with rate hikes thus far.

Meanwhile, a sharp weakness in the US Dollar (USD) after the release of the softer-than-expected United States (US) Personal Consumption Expenditure Price Index (PCE) data for August has also prompted further downside in the asset. Annual PCE inflation decelerated to 2.2%, faster than estimates of 2.3% and the July’s reading of 2.5%. The core PCE price index, which excludes volatile food and energy prices and is a Federal Reserve’s (Fed) preferred inflation measure, rose expectedly by 2.7%.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, slumps to near the Year-to-date (YTD) low of 100.20. More weakness in the US Dollar would result in a fresh bear cycle.

A further slowdown in US inflationary pressures has added to expectations that the Fed could cut interest rates by 50 basis points (bps) again in November. The Fed pivoted to policy-normalization with a larger-than-usual 50 bps rate last week due to growing concerns over deteriorating job growth.