USD/JPY Outlook: US Inflation Takes Center Stage Amid Fed Rate Hike Bets
The US inflation data takes center stage this week for USD/JPY traders, with the potential to shift expectations for Fed hikes over the next 12 months.
Friday's payrolls report showed an undershoot in payrolls reminiscent of previous years, making it harder for markets to keep whittling away at rate hike expectations. The current futures market forecast is for 42.5 basis points of hikes out to the June meeting next year, down from a high of 62 basis points.
Despite this, US consumer inflation has been running above the Fed's 2% target for five years, while upstream producer price pressures have re-accelerated. This week's US CPI report on Wednesday and PPI release on Thursday will help shape expectations for core PCE later this month.
The recent CFTC positioning data shows that leveraged funds cut their net short yen position from 101,990 contracts the week before to 60,825 in the latest report, a retracement of around 40%.