• USD/JPY consolidates near a multi-decade top and moves little after Tokyo inflation figures.
• The US-Japan rate differential and Hormuz risks continue to act as a tailwind for spot prices.
• Intervention fears keep JPY bears on the sidelines, capping the upside for the currency pair.

The USD/JPY pair extends its sideways consolidative price move during the Asian session on Friday and currently trades just below the 162.00 mark, near a four-decade high. Spot prices move little in reaction to Tokyo consumer inflation figures and remain on track to register gains for the second consecutive week.

The Statistics Bureau of Japan reported that the headline Consumer Price Index (CPI) in Tokyo – Japan's capital city – accelerated from the 1.4% YoY rate to 1.7% in June. Additional details showed that core CPI, which excludes volatile fresh food prices, grew 1.6% YoY during the reported month, up from 1.3% in the prior month. Furthermore, a core gauge that excludes both fresh food and energy prices rose 1.9% over the twelve months to June, from 1.6% in the previous month.

The crucial report indicated inflation in Japan was now picking up as producers pass higher energy import costs to consumers, reaffirming market bets that the Bank of Japan (BoJ) will hike interest rates again. The Japanese Yen (JPY), however, struggles to attract meaningful buyers as the wide rate differential between Japan and the US keeps the so-called carry trade in play. This, along with economic risks stemming from the Middle East conflict, undermines the JPY.

Market concerns resurfaced after reports suggested that Iran’s Islamic Revolutionary Guard Corps (IRGC) attacked a Singapore-flagged cargo ship in the Strait of Hormuz. Traders scrambled to price in the geopolitical risk premium, which helps revive   demand for the safe-haven US Dollar (USD), and further supports the USD/JPY pair. The upside for the USD, however, seems limited amid easing of bets for US Federal Reserve (Fed) rate hikes this year.

Furthermore, speculations that Japanese authorities will step in again to prop up the domestic currency hold back the JPY bears from placing fresh bets and contribute to capping the USD/JPY pair. Nevertheless, the aforementioned supportive fundamental backdrop suggests that the path of least resistance for spot prices remains to the upside. Hence, any corrective pullback might still be seen as a buying opportunity and is more likely to remain cushioned.