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USD/JPY rebounded to fresh monthly highs around 143.90 ahead of key data releases on Thursday, ignoring the greenback’s sideways trade. The pair echoed dovish concerns about the Bank of Japan following the recent rise in U.S. Treasury yields and Japan’s inflation clues.
The 10-year U.S. and Japanese government bond yields rose for the first time in three days, approaching 4.02% and 0.585% respectively, as the market waited for U.S. inflation data, while the market sentiment was cautiously optimistic after China’s price pressure clues brought a major impact.
On the other hand, Japan’s July PPI annual rate fell from 4.1% to 3.6%, market expectations were 3.5%, the monthly rate increased by 0.1%, expected 0.2%, and the previous value was -0.2%.
In response, the BoJ’s doves are likely to continue to defend ultra-loose monetary policy, especially against the backdrop of heightened concerns that major central banks may soon pause interest rate hikes.
Elsewhere, S&P 500 futures edged higher and gains in the Nikkei 225 also supported gains in USD/JPY, a risk barometer. It’s worth pointing out that US-China headlines have been negative for risk sentiment but have been ignored of late.
On Thursday, the Chinese Ministry of Commerce in Asia expressed serious concern and indicated that it has the right to take retaliatory measures. The news also quoted the Ministry of Commerce of China as saying, “We hope that the US side will respect the laws of market economy and the principles of fair competition.” Earlier in the day, U.S. President Joe Biden signed the highly anticipated bill allowing the U.S. Treasury Department to ban or limit certain U.S. investments in Chinese entities, Reuters reported.
Previously, economic worries from China, Europe and the United Kingdom, as well as the suppression of banks by global rating agencies, all put pressure on the market. In addition, the market is worried about deflation in China and has doubts about the future actions of major central banks. However, the dollar has struggled to ease risk sentiment amid falling yields.
Next, US inflation data (CPI for July) will be key for USD/JPY traders to watch for a clear direction. Consensus forecasts show headline CPI rising to 3.3% yoy from 3.0% previously, while core CPI (i.e. CPI excluding food and energy) is likely to remain unchanged at 4.8%. Those statistics took on even more importance after a disappointing non-farm payrolls (NFP) figure this month and concerns that the Federal Reserve is nearing a peak in interest rates.
