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Japanese Yen Talking Points

USD/JPY pulls back from a fresh weekly-high (110.49) as the updates to the U.S. Consumer Price Index (CPI) instill a mixed outlook for the real economy, and the dollar-yen exchange rate may continue to consolidate ahead of the Federal Open Market Committee (FOMC) interest rate decision on June 13 as market participants weigh the outlook for monetary policy.

Image of daily change for major currencies

USD/JPY Advance Stalls Ahead of FOMC as U.S. CPI Fails to Impress

Image of daily change for USDJPY

Despite the uptick in both the headline and core CPI, a deeper look at the report showed Average Hourly Earnings holding flat in May, with Average Weekly Earnings narrowing to 0.3% from 0.4% in April.

Signs of subdued wage growth may impede on the Federal Reserve’s hiking-cycle as ‘market-based measures of inflation compensation remain low,’ and the central bank may soften its hawkish tone throughout the second-half of the year as ‘inflation on a 12-month basis is expected to run near the Committee's symmetric 2 percent objective over the medium term.’

Image of Fed Fund Futures

With that said, the U.S. dollar stands at risk of facing a more bearish fate if the FOMC may merely stick to the current script, and ongoing projections for a neutral Fed Funds rate of 2.75% to 3.00% is likely to produce headwinds for the U.S. dollar as market participants scale back bets for four rate-hikes in 2018. For more insight, sign up and join DailyFX Currency Analyst David Song LIVE for a preview of the FOMC interest rate decision.

USD/JPY Daily Chart

Image of USDJPY daily chart
  • USD/JPY appears to be making a run at the May-high (111.40) as breaks the monthly opening range, with the Fibonacci overlap around 111.10 (61.8% expansion) to 111.60 (38.2% retracement) on the radar as the pair initiates a fresh series of higher highs & lows.
  • However, failure to test the May-high (111.40) may give way to range-bound prices, with a move break/close below the 109.40 (50% retracement) to 110.00 (78.6% expansion) region raising the risk for a move back towards 108.30 (61.8% retracement) to 108.40 (100% expansion).

For more in-depth analysis, check out the Q2 Forecast for the Japanese Yen

Image of DailyFX economic calendar

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Want to know what other currency pairs the DailyFX team is watching? Download and review the Top Trading Opportunities for 2018.

--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.