USD/JPY fell 0.9% to 155.59, its lowest level since June 4. Markets are wary about Friday’s US PCE deflators mirroring the softer CPI data that started USD/JPY’s decline below 160 a fortnight ago. Participants also suspected that currency interventions by the Bank of Japan contributed to the 1.8% decline in USD/JPY on July 11. A week later, on July 17, USD/JPY suffered another large decline of 1.4% to 156.20 due to US Republican presidential candidate Donald Trump’s complaint about the JPY’s massive weakness. The combination of events led to a short-covering in the JPY crosses, especially against the commodity-led currencies. While USD/JPY appears supported at 155.40 (100-day moving average) for now, we do not rule out the currency pair breaking below 155 on a faster-than-expected decline in the PCE deflators. 
JPY bears will likely stay defensive ahead of the Bank of Japan and FOMC meetings on July 31.While both central banks are expected to keep their interest rates unchanged, the BOJ intends to unveil the details of its JGB reduction plan over the next couple of years. Nonetheless, the futures market sees a 94.5% chance of a Fed cut in September, while the OIS market has assigned a more than 50% chance for a BOJ hike in the same month. In contrast to the US, Japan’s inflation excluding fresh food rose a second month to 2.6% YoY in June from 2.5% in May. Liberal Democratic Party Secretary-General Toshimitsu Motegi said the BOJ needed to clearly communicate that it will firmly proceed with the normalization of monetary policy. The JPY’s weakness has hurt Prime Minister Fumio Kishida’s approval ratings by lifting import prices and adding to the cost-of-living pressures.
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