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USD/JPY Slides as US Producer Price Index Misses Expectations


The USD/JPY currency pair experienced a decline during the New York session, losing over 60 pips and trading at the 139.35 area. This drop was largely attributed to the Greenback facing significant selling pressure following the release of the US Producer Price Index (PPI) data, which revealed lower-than-expected 'factory gate' inflation. The weakening of US bond yields, along with a surge in stock prices, favored the JPY and contributed to the downward pressure on the USD.


The PPI report, released by the US Bureau of Labor Statistics, indicated a monthly decrease of 0.3% in May, surpassing the anticipated 0.1% decline. Additionally, the year-on-year measure fell to 1.1%. Conversely, the Core PPI figure matched expectations, rising by 0.2% on a monthly basis, with the yearly measure standing at 2.8%.


These disappointing PPI figures led to a decline in US bond yields across the curve, thereby further weighing on the USD. The 10-year bond yield fell to 3.79%, while the 2-year yield settled at 4.62% and the 5-year yield at 3.96%, each experiencing a 1.58% slide. Meanwhile, the S&P 500 index surged to its highest level since April 2022, diverting demand away from the safe-haven USD and JPY towards riskier assets.


Market participants now await the Federal Reserve's decision, which is scheduled for 18:00 GMT. The expectation remains that there will be no interest rate hike, and investors will closely examine the updated macro forecast, revised dot plots, and remarks from Chair Powell's press conference for any indications of future policy direction. Analysts currently anticipate a resumption of tightening at the next July meeting, with a 25 basis point (bps) hike anticipated.

From a technical perspective, USD/JPY maintains a neutral stance for the short term, with indicators signaling a bearish sentiment on the daily chart. The forthcoming trajectory of the pair will largely depend on the outcome of the Fed's decision and market expectations for future meetings.

Having lost the 20-day Simple Moving Average (SMA) at the 139.45 level, key support levels for USD/JPY are identified at the psychological mark of 139.00 and the 200-day SMA at 137.25. Conversely, a move above the 140.00 zone would suggest a continuation of the bullish trend, with subsequent resistances located at the 140.50 area and a multi-month high at 140.90.

In summary, the USD/JPY currency pair experienced a decline following the release of weaker-than-expected US Producer Price Index data. The subsequent drop in US bond yields and surge in stock prices contributed to the selling pressure on the Greenback. Investors now eagerly await the Federal Reserve's decision and any insights into future policy guidance.

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