The Consumer Price Index (CPI) in the U.S. decreased from 3.0% to 2.9% in June, which is below the forecast. However, the market reacted calmly, as this did not add extra pressure on the Federal Reserve. The Fed is primarily focused on the core index, not the overall one, which continues to decline but is not rapid enough to affect the Fed's steady forecasts.
Overall, the inflation index supports the market's view that the Fed will begin to lower rates, and based on this release, expecting a strengthening of the dollar seems unlikely.
The Japanese market experienced a significant shock in early August, primarily caused by the Bank of Japan's rate hike, which occurred earlier than expected. The effect was amplified by signs of a looming recession in the U.S. due to a weaker labor market report and comments from Fed representatives.
Few anticipated that the modest BOJ rate hike would trigger a large-scale exit from carry trades. The yen's strengthening was too severe, and Japan's economic outlook deteriorated. The prospects for further BOJ rate hikes have mostly stayed the same, and it is unlikely that a new driver capable of causing significant yen movements will emerge in the coming weeks. On Thursday morning, Japan will release its preliminary GDP estimate for Q2. Growth is expected, but whether it will offset the 2.9% GDP decline in Q1 remains uncertain. According to indirect data, consumer spending shrank in the first four months of the year, but this trend appears to have stopped. Net exports increased, and investments also rose. The market will analyze incoming data, and until this process is complete, significant movements in the yen are unlikely.
The net short JPY position decreased by 5 billion over the reporting week, falling to less than 1 billion, marking the fourth consecutive week of decline. In July, the total short position in the yen exceeded 30 billion, almost entirely liquidated in just four weeks. This indicates a large-scale exit from carry trades, which is likely to continue as the policies of the BOJ and Fed are opposing, and this trend is unlikely to be reversed in the near future. The calculated price is also steadily declining.
The USD/JPY pair has entered a sideways range while awaiting new inputs. Despite the fact that the main drivers that led to the sharp decline from the high of 161.96 have already played out, we assume that the current calm is temporary and the likelihood of resuming the decline is high. If the major exit from carry trades has already concluded, a correction to 149.00/50 is possible in the coming weeks, with the next resistance at 151.80, though an increase to this level seems highly unlikely. A resumption of the decline may begin with the emergence of a new driver, most likely either the announcement of the BOJ's plans to tighten monetary policy or clear signals in favor of a Fed rate cut. The local low established on August 5 at 141.71 is not reliable and will likely be tested in the medium term.
