USD/JPY retraces from YTD high, holds below the 146.00 area following Japanese CPI data

• USD/JPY retreats from a YTD high and holds below the 146.00 mark on Friday.
• Japanese National Consumer Price Index (CPI) for July YoY came in at a 3.3% versus 2.5% estimated.
• US Initial Jobless Claims were marginally better than anticipated; the Philadelphia Fed Manufacturing Index improves.

The USD/JPY pair consolidates its recent losses after retracing from a year-to-date (YTD) high of 146.56 during the early Asian session on Friday. The major pair currently trades around 145.74, down 0.07% on the day.  

Japan’s Statistics Bureau reported on Friday that the Japanese National Consumer Price Index (CPI) for July YoY came in at 3.3% against the market expectation of 2.5%. Meanwhile, the National CPI ex Fresh Food YoY matched the market consensus of 3.1%, and the National CPI ex Food, Energy rose to 4.3% figures versus 4.2% prior. 

On Thursday, Exports declined 0.3% YoY, the first drop in 29 months, with a significant decline in shipments to China. While Imports dipped 13.5%, versus the 14.7% decline expected. Meanwhile, the Japanese trade deficit totaled 78.7 billion yen versus the estimation of a 24.6 billion yen deficit.

On the US Dollar front, the number of jobless claims increased to 239K for the week ending on August 12. The figure came in slightly below the market expectation of 240K, the US Bureau of Labour Statistics (BLS) reported on Thursday. Meanwhile, the Continuing Jobless Claims increased to 1.716 million, the highest level seen in the last four weeks. Finally, the Philadelphia Federal Reserve’s Manufacturing Survey for August improved to 12, beating the expectation of -10 and the previous month of -12. 

That said, the robust US labor data might convince the Federal Reserve (Fed) for an additional rate hike. FOMC Minutes emphasized that inflation remained unacceptably high and it may need additional tightening of monetary policy to bring inflation to the longer-run target.

The divergence of monetary policy between the US and Japan is the main driver of Yen’s weakening. However, the optimism that US interest rates have peaked might cap the upside in the Greenback. Furthermore, traders turn cautious amid the fear of FX intervention by the BoJ. It’s worth noting that the Japanese central bank prompted massive dollar selling in September and October last year as the Japanese Yen approached the 145 zone.

In the absence of economic data release from both Japan and the US, the USD/JPY pair remains at the mercy of USD price dynamics. In the meantime, market players will keep an eye on the headline surrounding China’s debt crisis and the real-estate woes, which could weigh on the risk sentiment.