The dollar has recovered most of its losses against the yen as September Fed rate-hike odds rebound to 50%, with today's US CPI report likely to be key for the next move. The yen stays pressured despite intervention, with sources pointing to a possible BoJ rate hike in September.
The dollar has recovered most of the losses triggered by a softer-than-expected US jobs report, with September rate-hike odds rebounding to 50% as traders await a critical US CPI release today.
CPI report to decide the next move
A significant loss of government jobs made the last jobs report look softer than it actually was. Meanwhile, the unemployment rate fell further to 4.1%. Today's CPI print is critical for the September FOMC decision and Fed Chair Warsh's speech at the Jackson Hole symposium, with focus on the Core CPI month-over-month measure, expected at 0.2%. A hot report would likely trigger a rally as traders raise their bets on tightening; a soft or in-line reading would instead reduce those odds and add pressure on the dollar.
Yen stays pressured despite intervention
Not much has changed for the yen since the intervention. US Treasury Secretary Bessent told CNBC: "it will require policy to follow up on the intervention", adding that the US would not have joined if it was not optimistic about Japan's policies. Japan's currency diplomat Mimura said he shared a common understanding with the BoJ following the intervention — another possible hint at a faster tightening pace.
BoJ seen hiking to 1.25% in September
A report from Jiji said the BoJ may consider a rate hike at its September meeting, and such reports have historically preceded BoJ action. Expectations now point to a hike to 1.25%. Market pricing is more cautious, however, assigning just a 58% probability to the move.
USD/JPY has been slowly recovering since the intervention, with the pair eyeing resistance around the 160.50 level. Sellers likely step in there for a possible drop back toward the 155.00 handle, while a break higher would open the door for buyers to press into new cycle highs.
Overall, the trend is unlikely to change without a dovish repricing in Fed rate expectations or a faster BoJ tightening pace.
Source: Investinglive
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