For the second consecutive day, the Japanese yen continues to lose ground against the U.S. dollar. According to data released Friday by Japan's Statistics Bureau, annual consumer price growth slowed to 3.1% in July from 3.3% a month earlier. The core indicator, excluding fresh food prices, also fell—from 3.3% to 3.1%—reaching its lowest level since November 2024.
Nevertheless, the figures slightly exceeded analysts' consensus forecast, which had expected a slowdown to 3%. Particular attention was drawn to the core CPI excluding food and energy—an indicator closely monitored by the Bank of Japan. In July, it rose 3.4% year-on-year, reinforcing expectations of further monetary tightening by the regulator.
However, investors remain cautious about the timing of a potential rate hike by the Bank of Japan, which limits demand for the yen. At the same time, there remains a significant policy divergence between the Bank of Japan and the U.S. Federal Reserve.
Amid signs of growing inflationary pressures, market participants have scaled back expectations for the extent of Fed policy easing. Even so, traders still price in a high likelihood of a September rate cut, followed by two more cuts before year-end.
The reassessment of forecasts was prompted by U.S. jobless claims data released Thursday: initial claims reached a three-month high, while continuing claims climbed to their highest level in nearly four years. These figures suggest that the recent cooling of the labor market persisted in August.
Additional concerns were raised by the drop in the Philadelphia Fed's Manufacturing Index—from 15.9 in July to -0.3 in August. This intensified worries over a slowdown in U.S. economic growth and reinforced expectations of imminent Fed rate cuts.
These factors, combined with anticipation of Fed Chair Jerome Powell's speech at the Jackson Hole symposium, are restraining dollar buying activity. Powell's comments may clarify the Fed's next steps on rate cuts, potentially giving fresh momentum to the dollar and the USD/JPY pair.
From a technical standpoint, yesterday's breakout of the key 148.00 level, followed by today's move above 148.50 resistance, is viewed as a bullish trigger. Positive oscillators on the daily chart confirm the favorable outlook. Therefore, an attempt to test the crucial 200-day Simple Moving Average (SMA), currently just above the 149.00 mark, appears likely. A sustained break above it would allow the pair to retest the psychological 150.00 level.
On the other hand, any corrective pullback is expected to attract new buyers near the 148.00 level. The next support lies at 147.80, below which USD/JPY could extend its decline toward the 147.30 level, before moving down to the 147.00 mark. A convincing break below this level would negate the positive outlook and shift the short-term bias in favor of the bears.
