Japanese Yen Edges Higher Against Flat USD as Markets Await US CPI Data

The Japanese Yen (JPY) managed a slight recovery from a one-week low against the US Dollar (USD) on Tuesday, though gains remained limited. Investors are navigating mixed signals from the Bank of Japan (BoJ) regarding its interest rate plans, while domestic political uncertainty and the potential drag from higher US tariffs continue to weigh on sentiment. The generally upbeat mood across global markets is also reducing demand for the safe-haven currency.

Despite these pressures, the BoJ’s recent upward revision of its inflation forecast has strengthened speculation that an interest rate hike could still be on the table before the year ends. This stands in contrast to expectations for the US Federal Reserve, where the outlook is leaning toward policy easing. That divergence is keeping the US Dollar’s upside in check, offering some support to the Yen. For now, traders are holding off on major moves until the release of the latest US consumer inflation figures, which could set the tone for USD/JPY in the near term.

Market Focus: US CPI, Japan’s Economic Outlook, and Fed Signals

• Japan’s wage data last week showed inflation-adjusted real wages falling for the sixth consecutive month, heightening concerns over a consumption-led recovery. Calls for increased spending and tax cuts are growing louder after the ruling party’s recent election setback.
• Global equity markets are showing resilience despite fresh tariff concerns, keeping JPY under pressure and pushing USD/JPY to a one-and-a-half-week high during Asian trading hours.
• The BoJ’s July Summary of Opinions indicated policymakers are prepared to resume rate hikes if growth and inflation align with forecasts, preventing aggressive Yen selling.
• In the US, markets are betting the Fed will begin cutting rates in September, with at least two 25-basis-point reductions expected by year-end, fueled by a weaker-than-expected July jobs report.
• The dollar’s recent gains have stalled as traders await CPI data, with additional volatility likely from upcoming FOMC speeches, Thursday’s US PPI release, and Japan’s preliminary Q2 GDP report on Friday.

Technical Outlook: USD/JPY Above Key Support

A breakout above the 147.75–147.80 resistance zone, representing the 38.2% Fibonacci retracement of July’s upswing, and a firm close above the 148.00 mark could trigger additional buying interest. Should the pair break past 148.45–148.50, it may target the 149.00 area, which aligns with the 23.6% retracement level.

On the downside, immediate support sits at 148.00, followed by 147.80–147.75. Any deeper pullback may find buyers near 147.00, with a stronger floor at 146.80—a confluence of the 200-period SMA on the 4-hour chart and the 50% Fibonacci retracement. A decisive drop below that area could lead to a decline toward 145.90 and potentially the psychological 145.00 level.

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