USD/JPY Trades With Modest Intraday Losses Below 140.00, But Lacks Persistence

During Friday's Asian session, the USD/JPY pair moves away from a one-week high in the region of 140.50 that was reached the previous day. Spot prices appear to have ended a five-day winning trend and are currently trading around 139.85, down 0.15 percent on the day.

Concerns over China's declining economy, deteriorating US-China relations, and geopolitical risks benefit the safe-haven Japanese Yen (JPY), which puts pressure on the USD/JPY exchange rate. The JPY is strengthened by an increase in the country's core inflation rate. In June, the Japan Statistics Bureau reported that the National core CPI, which excludes the cost of fresh food, increased by 3.3% year-over-year. Also registering at 3.3%, the headline CPI remained above the Bank of Japan's 2% target for the fifteenth consecutive month.

The data rekindled hopes for a BoJ policy adjustment. Governor Kazuo Ueda of the Bank of Japan signalled earlier this week that ultra-loose monetary policy would be maintained for the time being and noted that there is still some distance to go before the 2% inflation target can be reached sustainably. In addition, the Japanese government lowered its forecast for economic growth on Thursday, which may discourage traders from placing aggressive bullish wagers on the JPY. In the meantime, the subdued price action of the US Dollar (USD) does little to impress traders or provide meaningful impetus for the USD/JPY pair.

In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, is expected to consolidate the previous day's strong rise up to more than a one-week high after the positive US labour market data. In fact, the US Labour Department reported a decline in Weekly Initial Jobless Claims to a seasonally adjusted 228,000 for the week ending July 15 and reaffirmed expectations for a 25 basis point (bps) rate increase by the Federal Reserve (Fed) in July. In addition, scepticism that the Fed will adopt a more dovish policy posture should act as a tailwind for the USD and the USD/JPY pair.

In the absence of market-moving economic data from the United States, the aforementioned mixed fundamental backdrop may discourage traders from placing aggressive direction wagers prior to next week's key central bank event risks. On Wednesday, following a two-day meeting on monetary policy, the Fed is expected to announce its decision. This will be followed by the BoJ meeting on Thursday and Friday, which should help investors determine the USD/JPY's near-term trajectory.