MUFG analysts stress that USD/JPY is highly sensitive to United States (US) Personal Consumption Expenditures (PCE) Price Index surprises, especially in the current environment of Fed focus on inflation persistence. Their event-driven analysis shows systematic intraday reactions, with downside surprises pushing USD/JPY lower and upside surprises lifting the pair, although the signal fades beyond the first hour as broader macro drivers take over.

Pair reacts sharply to PCE surprises

"FX markets are historically sensitive to PCE releases, and this sensitivity is amplified in the current environment where the Fed remains firmly focused on inflation persistence."

"As the Fed’s preferred inflation gauge, the core PCE is a key driver of front-end US yields and the US dollar."

"For USD/JPY, the directional response is both intuitive and statistically consistent."

"Downside surprises lead to USD/JPY declines, reflecting softer inflation and reduced expectations for Fed tightening, while upside surprises drive USD/JPY higher as front-end rates reprice more hawkishly."

"Our analysis identifies this reaction is built gradually, with the clearest signal emerging within the first 60 minutes post-release, suggesting decisive repricing process."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)