USD/JPY holds below 149.50 ahead of US Retail Sales data

• USD/JPY edges lower to near 149.40 in Thursday’s Asian session. 
• The rising bets that the Fed will gradually lower interest rates in the remainder of the year might support the USD. 
• Investors will take more cues from Japan’s September National CPI inflation data on Friday. 

The USD/JPY pair weakens to around 149.40 despite the stronger US Dollar (USD) during the Asian trading hours on Thursday. The US Retail Sales data will take center stage later on Thursday, which is estimated to rise to 0.3% in September from 0.1% in the previous reading. 

The US economic data showed a resilient economy and inflation in September rose slightly more than expected, prompting traders to trim bets on further large rate cuts from the US Federal Reserve (Fed). This, in turn, could lift the Greenback against the Japanese Yen (JPY). Traders have assigned a nearly 100% odds of a 25 basis points (bps) rate cut in November, with just a 0.2% possibility of a pause by the Fed, keeping the fed funds rate at the 4.75%-5.0% target range, according to LSEG calculations.

Nonetheless, persistent geopolitical risks and US election uncertainty could boost the safe-haven flows, benefitting the JPY. Israel’s plan to respond to this month’s Iranian attack is ready, per CNN. US officials expect it to happen before the US presidential election. Prime Minister Benjamin Netanyahu separately stated Israel is opposed to a “unilateral ceasefire” in its war with Iran-backed Hezbollah in Lebanon.

Data released by the Ministry of Finance showed on Thursday that Japan’s exports fell 1.7% year-over-year in September from a revised rate of 5.5% in August. Meanwhile, imports grew 2.1% year-over-year in September, compared to 2.3% the month prior. Both figures came in weaker than the expectations. 

Investors await the nation’s September National Consumer Price Index (CPI) data on Friday for fresh impetus. The National CPI ex Fresh Food is expected to ease to 2.3% in September from 2.8% in August. Meanwhile, the Bank of Japan’s (BOJ) challenge in proceeding with policy normalization amid uncertainty over the new political leadership's preference for monetary settings might cap the upside for the JPY in the near term.