• The Japanese Yen struggles to extend modest gains despite a broadly weaker US Dollar.
• Softer US CPI and PPI data reduce expectations of a near-term Fed rate hike.
• Rising Oil prices, fiscal concerns and the wide US-Japan rate gap weigh on the Yen.

The Japanese Yen (JPY) holds modest gains against the US Dollar (USD) on Wednesday but struggles to extend its recovery despite a broadly weaker Greenback following softer-than-expected US inflation data. At the time of writing, USD/JPY trades around 162.14, down 0.07% on the day.

The US Producer Price Index (PPI) fell 0.3% in June after a 0.6% rise in May. The annual PPI rate slowed to 5.5% from 6.0%, below the 6.2% forecast. Core PPI rose 0.2% in June, missing the 0.4% forecast, while the annual core rate edged up to 4.7% from 4.6%, below expectations of 5.2%.

The data follow softer-than-expected US CPI figures released on Tuesday. Together, the weaker inflation readings have reduced expectations of a near-term Federal Reserve (Fed) interest rate hike, weighing on the US Dollar.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades around 100.80, easing from an intraday high of 101.03.

However, the recent slowdown in inflation could prove temporary as renewed fighting between the US and Iran pushes crude Oil prices higher. New York Fed President John Williams also said on Wednesday that inflation is still too high and must return to the central bank’s 2% target on a sustained basis.

On the Japanese side, traders remain alert for possible intervention by Tokyo as the Yen stays pinned near 40-year lows. Hopes that Japan’s Government Pension Investment Fund (GPIF) could shift more money into domestic assets have also provided little lasting support after Reuters reported there are no immediate plans to revise its asset allocation targets.

Rising Oil prices add to the pressure because Japan relies heavily on imported energy. Concerns over the country’s heavy public debt and the government’s expansionary fiscal plans also weigh on the Yen.

Prime Minister Sanae Takaichi said on Wednesday that stronger domestic investment and improved international competitiveness would help raise potential growth and maintain confidence in the Yen. Still, the wide US-Japan interest rate gap keeps the broader USD/JPY bias tilted to the upside.