Japanese Yen rises as cool US CPI slashes Fed hike bets

USD/JPY losses as softer inflation offsets Warsh caution

The latest US inflation report showed that the Consumer Price Index (CPI) rose 3.5% YoY in June, below estimates of 3.8% and below May’s 4.2% print. This triggered a repricing of Fed hawkish bets, with traders now expecting just 18 basis points of tightening, down from 35 bps a day ago, according to Prime Terminal data.

The Fed Chair, Kevin Warsh, is testifying before the US Congress. He commented that the Fed is committed to achieving price stability while acknowledging that the labour market is in good balance. When asked about June’s CPI, he said it doesn’t mean the mission was accomplished and that he doesn’t want to overread or cherry-pick data.

In the meantime, the Middle East conflict keeps energy prices higher, with the US crude Oil benchmark, WTI, rising over 1.50% in the day and up nearly 11% in the month. Although June’s inflation came cooler than expected, July’s print could aim higher due to the rise of energy prices.

Ahead this week, the US economic docket will feature the release of the Producer Price Index (PPI) for June, which is expected to dip from 6.5% to 6.2%, and the core PPI, which is expected to rise from 4.9% to 5.2%. Alongside this, traders' focus would be on additional Fed speaking, led by the Chair, Warsh, the Governor, Cook, and the New York Fed President, John Williams.

USD/JPY Price Forecast: Technical outlook

Chart Analysis USD/JPY — USD/JPY daily chart

In the daily chart, USD/JPY trades at 162.15, keeping a clear bullish bias as spot holds above the clustered support of the simple moving averages near 160.19 and the horizontal floor at 160.00. The upward-sloping trend lines originating from 139.89 and 152.10, together with the former resistance line from 159.23 now acting as underlying demand, reinforce the constructive structure, while the Relative Strength Index (14) near 57 suggests positive but not overstretched momentum after cooling from overbought readings.

On the downside, immediate support is seen at the simple moving average cluster around 160.19, closely backed by the 160.00 horizontal level, where buyers could step in on pullbacks. A deeper slide would expose the upward trend-line reference near 158.23, with broader bullish control only threatened on sustained weakness toward the 154.40 trend-line area, leaving the pair biased to extend gains while these floors continue to hold.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Japanese Yen FAQs

What key factors drive the Japanese Yen?

The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.

How do the decisions of the Bank of Japan impact the Japanese Yen?

One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.

How does the differential between Japanese and US bond yields impact the Japanese Yen?

Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.

How does broader risk sentiment impact the Japanese Yen?

The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.