USD/JPY Sees Rebound as Markets Eye US CPI and Iran Tensions
The US dollar faced significant selling pressure last week, resulting in a drop across various currency pairs. The initial weakness came from the FOMC rate decision, which was not seen as a major surprise by investors. However, things took a turn when reports confirmed that the US Treasury participated in joint interventions with Japan and South Korea, the first since 2011.
The US dollar's losses were exacerbated by statements from Japan's Ministry of Finance and US Treasury Secretary Bessent, who said they would not hesitate to conduct more joint interventions in the future. This has led to a low probability of another intervention in the near-future, allowing the greenback to trade on fundamentals.
The key fundamental driver for the USD/JPY pair is the upcoming US CPI report. A hot reading could seal a rate hike at the September meeting, while a de-escalation in tensions between the US and Iran would keep the dollar under pressure due to easing inflationary worries and lower rate hike probabilities.
The recent joint intervention between Japan's MoF and the US Treasury has led to a massive appreciation of the Japanese yen. However, without a change in fundamental drivers, such as dovish repricing in Fed interest rate expectations or faster BoJ tightening pace, the trend is unlikely to change.