Japanese yen knocking on the 145 door

• US CPI accelerates to 3.2%
• US PPI climbs 0.7%

The Japanese yen is trading quietly on Friday. In the European session, USD/JPY is trading at 144.82, up 0.07%. It has been an awful week for the yen, which is down about 2% against the US dollar. The yen fell as low as 144.89 today, and it looks like the yen will breach the 145 line for the first time since June.

There are no Japanese events on the calendar, so it could be a quiet day for the yen. In the US, the Producer Price Index for July surprised on the upside. The index jumped 0.8% m/m, up from 0.2% in June and above the consensus estimate of 0.7%. Core PPI rose 0.3%, following a -0.1% reading in June and beat the estimate of 0.2%. The US dollar hasn’t shown much movement against the major currencies following the release.

US inflation rises, core rate ticks lower

The July US inflation report showed a divergence between headline CPI and core CPI. Headline CPI accelerated for the first time in 13 months, with a reading of 3.2%, up from 3.1%. The rare uptick in inflation didn’t rustle any market feathers, as the estimate stood at 3.3% and the acceleration was due to base effects rather than new inflationary pressures.

Core CPI, which the Fed pays close attention to, ticked lower to 4.7% in July, down from 4.8% in June. On a monthly basis, the core rate climbed by 0.2% for a second straight month. This is encouraging for the Fed as it points to core inflation losing steam. Headline inflation has fallen sharply due to a sharp drop in energy prices, but the core rate excludes food and energy prices.

The inflation report appears to have cemented a Fed pause in September. The markets are widely expecting the Fed to hold rates next month and have also priced in a pause in November. The markets are already looking ahead to rate cuts next year but the Fed is taking a more hawkish stance, as it has more work to do before it can declare victory over inflation.

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USD/JPY Technical

• There is resistance at 143.55 and 144.28
• 142.12 and 141.47 are providing support

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