USD/JPY posts fresh multi-decade high above 161.00 ahead of US Inflation release

USD/JPY rises above 161.00 amid firm US Dollar ahead of the US Core PCE Inflation.
US inflation data is expected to have softened in May.
Fears of Japan’s intervention have intensified as Yen weakened to 161.00 against the US Dollar.

The USD/JPY pair prints a fresh multi-decade high at 161.28, its highest since 1986, on Friday. The asset rises further as the US Dollar (USD) strengthens amid uncertainty ahead of the United States (US) core Personal Consumption Expenditure price index (PCE) data for May, which will be published on Friday.

The US underlying inflation data will provide cues about when and how much the Federal Reserve (Fed) will reduce interest rates this year. The US PCE report is expected to show that price pressures grew at a slower pace of 0.1% against 0.2% in April month-on-month. Annually, the underlying inflation is projected to decelerate to 2.6% from 2.8% in April.

A scenario in which price pressures decline expectedly or more would boost expectations of early rate cuts by the Fed. Currently, financial markets expect that the Fed will start reducing interest rates from the September meeting. The Fed is also expected to deliver two rate cuts this year against one indicated by officials in the latest dot plot.

Meanwhile, the Japanese Yen weakens even though Bank of Japan (BoJ) signalled further policy tightening to ease price pressures, which have been recently boosted by weak Yen that has prompted exports and increased import costs.

Sheer weakness in the Japanese Yen has also prompted expectations of Japan’s stealth intervention. In an early Asian session, Japanese Finance Minister Shunichi Suzuki said on Friday that the authorities were "deeply concerned" about the impact of "rapid and one-sided" foreign exchange moves on the economy, Reuters reported.

Economic Indicator

Core Personal Consumption Expenditures - Price Index (YoY)

The Core Personal Consumption Expenditures (PCE), released by the US Bureau of Economic Analysis on a monthly basis, measures the changes in the prices of goods and services purchased by consumers in the United States (US). The PCE Price Index is also the Federal Reserve’s (Fed) preferred gauge of inflation. The YoY reading compares the prices of goods in the reference month to the same month a year earlier. The core reading excludes the so-called more volatile food and energy components to give a more accurate measurement of price pressures." Generally, a high reading is bullish for the US Dollar (USD), while a low reading is bearish.

Why it matters to traders?

After publishing the GDP report, the US Bureau of Economic Analysis releases the Personal Consumption Expenditures (PCE) Price Index data alongside the monthly changes in Personal Spending and Personal Income. FOMC policymakers use the annual Core PCE Price Index, which excludes volatile food and energy prices, as their primary gauge of inflation. A stronger-than-expected reading could help the USD outperform its rivals as it would hint at a possible hawkish shift in the Fed’s forward guidance and vice versa.

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