The USD/JPY exchange rate rebounded to its highest level since April 3, following a rise in the US Dollar Index (DXY). It jumped to a high of 149, up by 6.2% from its lowest point this year. The focus now shifts to the upcoming Japan inflation and US inflation data.
Focus on the Federal Reserve remains
The USD/JPY exchange rate continued rising even as concerns that Donald Trump will seek to remove Jerome Powell as the Federal Reserve Chair before his term ends.
Media reports suggested that Trump had already written Powell’s termination letter, a move that some Republican representatives supported. Trump then denied these claims and expressed his disappointment in him.
There are still some chances that he will try to remove him as the Fed Chair now that economists expect the bank to start cutting rates either in September or October.
They cite this week’s US inflation report, which showed that the headline consumer price index (CPI) rose to 2.7%, while the core CPI figure jumped to 2.9%.
Trump has also cited the ongoing $2.7 billion Federal Reserve Building renovation as potential justification for firing him. Polymarket traders have placed a 21% chance that Powell will be out as Fed Chair this year.
The US dollar index will likely come under pressure if Trump fires Powell and if the Supreme Court allows it. That will mean that future presidents will be free to fire the Fed Chair at will.
Looking ahead, the next key catalyst for the USD/JPY pair will be the upcoming macroeconomic data from the United States. The US will publish the latest retail sales, export and import prices, and the Philadelphia Fed manufacturing index data.
While these numbers are important, the impact for the US dollar will be limited since the US has already published jobs and inflation data recently.
Japan consumer inflation data
The other important data to watch will come out on Friday when the statistics agency publishes the June inflation figure. Economists expect the data to show that the core inflation rate moved from 3.7% in May to 3.3% in June.
The headline consumer inflation report is expected to fall from 3.5% to 3.3%. While this is a step in the wrong direction, it means that Japan’s inflation has remained above the 2% target in the last three years.
According to Bloomberg, Bank of Japan (BoJ) officials are considering boosting their inflation forecast in the coming meeting because of the rising rice and food prices.
Analysts now anticipate that the BoJ will hike interest rates again in October when it assesses the impact of Trump’s tariffs on the economy. BoJ interest hikes and Fed cuts, will likely drag the USD/JPY pair lower.
USD/JPY technical analysis
The daily chart shows that the USD to JPY exchange rate has bounced back in the past few weeks. It moved from a low of 139.98 in May to 149, and rose above the 50-day and 200-day moving average.
The ongoing performance is part of the handle section of the inverse cup-and-handle pattern, a highly bearish continuation sign. It has also formed a bearish flag pattern.
Therefore, the pair will likely have a bearish breakdown in the coming weeks or months, with the next point to watch being at 140.
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