Impacts of US Inflation on USD/JPY Intervention Zone

The upcoming US Personal Income and Outlays report holds significant importance for determining the prospects of a September Fed rate cut. Analysts are projecting a rise of 2.6% year-on-year in the Core PCE Price Index, a decrease from the previous figure of 2.8% in April. If the actual numbers come in below expectations, it could strengthen the case for a rate cut. However, a rise in personal income and spending may lead to sustained demand-driven inflation, potentially necessitating a longer period of elevated interest rates.

Forecasts indicate that personal income is expected to increase by 0.4% and spending by 0.3%. In comparison, April witnessed a rise of 0.3% in personal income and 0.2% in spending. Given the focus on inflation, it is crucial for investors to closely observe statements from FOMC members. Their reactions to the report and opinions regarding the timing of a rate cut could heavily influence market sentiment. Scheduled speeches from FOMC members Thomas Barkin and Michelle Bowman further add to the potential for impactful commentary.

The USD/JPY trends are influenced by a combination of intervention discussions, US inflation data, and Federal Reserve speeches. Higher inflation in the United States might trigger intervention by the Japanese government, leading to more aggressive JGB purchases by the Bank of Japan in July. Consequently, the USD/JPY could encounter strong resistance on the upside. If Japanese intervention occurs and the BoJ hints at cutting JGB purchases aggressively, the USD/JPY might see a decline towards the 150 mark.

Currently, the USD/JPY is comfortably positioned above both the 50-day and 200-day EMAs, indicating bullish sentiment. A break above the high of June 26 could propel the pair towards the 162 level. However, factors such as interventions, Bank of Japan statements, and US inflation figures warrant close attention from investors. On the downside, a breach below 160 could signal a move towards the 50-day EMA, potentially reaching the support level at $151.685. The 14-day RSI reading of 72.28 suggests that the USD/JPY is in overbought territory, raising the possibility of heightened selling pressure at critical resistance levels.