Japanese Yen edges up against the US Dollar but remains close to 40-year lows

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The Japanese Yen (JPY) is trimming losses against the US Dollar (USD) on Tuesday, as the USD/JPY pair retreats to the 162.30 area at the European session opening, down from session highs near 162.50.

USD/JPY pulls back to 162.30 from session highs in the 162.50 area on Tuesday.
The US Dollar eases as investors await ¡the US CPI data release and Fed Warsh's testimony to Congress.
The Yen remains on the defensive as Tokyo lacks a plan to reallocate pension funds' investments.

The Japanese Yen (JPY) is trimming losses against the US Dollar (USD) on Tuesday, as the USD/JPY pair retreats to the 162.30 area at the European session opening, down from session highs near 162.50. The Yen has drawn some support from a slightly weaker US Dollar, but remains close to the 40-year low of 162.84.

The US Dollar Index (DXY), which measures the value of the Greenback against a basket of six peers, is pulling back from nearly two-week highs, as investors await the release of US Consumer Price Index (CPI) figures and the testimony of the Federal Reserve’s (Fed) Chairman, Kevin Warsh, before the US Congress.

US CPI seen well above the Fed's target

US consumer Prices are expected to have eased to a 3.8% year-over-year (Y-o-Y) increment in June from 4.2% in May, while the core CPI is seen growing at a steady 2.9% yearly rate.

These figures will follow comments by Fed Governor Christopher Waller on Monday, saying that the central bank will have to hike rates in the “near-term” if inflation remains above the 2% target, which boosted hopes that the next rate hike might come as soon as July.

Meanwhile, the situation in the Middle East continues deteriorating. The US military has resumed its blockade of the Strait of Hormuz, and Iran has attacked some vessels trying to cross the waterway. On Monday, US President Donald Trump offered protection to vessels attempting to cross the corridor for a 20% fee, altogether sending Oil prices to multi-week highs and fuelling inflationary pressures further.

In Japan, a report from Reuters affirmed that the Japanese Government does not have a specific plan to repatriate investments from the Government Pension Investment Fund (GPIF). The Yen, which bounced up last week when the Finance Ministry announced that measure, tumbled on Monday amid the lack of concretion shown by Japanese authorities.

Economic Indicator

Consumer Price Index (YoY)

Inflationary or deflationary tendencies are measured by periodically summing the prices of a basket of representative goods and services and presenting the data as The Consumer Price Index (CPI). CPI data is compiled on a monthly basis and released by the US Department of Labor Statistics. The YoY reading compares the prices of goods in the reference month to the same month a year earlier.The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.

Why it matters to traders?

The US Federal Reserve (Fed) has a dual mandate of maintaining price stability and maximum employment. According to such mandate, inflation should be at around 2% YoY and has become the weakest pillar of the central bank’s directive ever since the world suffered a pandemic, which extends to these days. Price pressures keep rising amid supply-chain issues and bottlenecks, with the Consumer Price Index (CPI) hanging at multi-decade highs. The Fed has already taken measures to tame inflation and is expected to maintain an aggressive stance in the foreseeable future.

Economic Indicator

Consumer Price Index ex Food & Energy (YoY)

Inflationary or deflationary tendencies are measured by periodically summing the prices of a basket of representative goods and services and presenting the data as the Consumer Price Index (CPI). CPI data is compiled on a monthly basis and released by the US Department of Labor Statistics. The YoY reading compares the prices of goods in the reference month to the same month a year earlier. The CPI Ex Food & Energy excludes the so-called more volatile food and energy components to give a more accurate measurement of price pressures. Generally speaking, a high reading is bullish for the US Dollar (USD), while a low reading is seen as bearish.

Why it matters to traders?

The US Federal Reserve has a dual mandate of maintaining price stability and maximum employment. According to such mandate, inflation should be at around 2% YoY and has become the weakest pillar of the central bank’s directive ever since the world suffered a pandemic, which extends to these days. Price pressures keep rising amid supply-chain issues and bottlenecks, with the Consumer Price Index (CPI) hanging at multi-decade highs. The Fed has already taken measures to tame inflation and is expected to maintain an aggressive stance in the foreseeable future.

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