The USD/JPY pair has been quite bearish since the beginning of the week with a significant gap which is expected to be filled before the strong bearish movement continues.
The US dollar is forecast to soften against the yen amid the Fed's policy decision, even though a strong labor market data and record-low unemployment result have been published recently. Besides, China backtracked on substantial commitments it made during trade talks with the United States, prompting President Donald Trump to impose additional tariffs on Chinese goods slated to go into effect on Friday. The US-China trade war is still having its bite on economic growth. Thus, major stock markets fell worldwide on Monday in response to the tweet which preceded scheduled trade talks this week.
According to the Fed's policymakers, some recent weakness of the US inflation could be "transitory," suggesting no reason to adjust monetary policy at this point. Powell surprised markets last week by saying that lower inflation trends could be explained partly by "transitory" factors, including fund management fees, apparel prices, and airfares. The remarks were seen by some investors as more aggressive on possible inflation risks than expected. Currently, as the labor market is strong as well as the US economic growth, the greenback might inch up a bit. This week, Friday's CPI report from the United States is anticipated to remain unchanged at 0.4%, while the Core CPI is expected to increase to 0.2% from the previous value of 0.1%.
On the JPY side, Asian shares staggered up from their five-week lows on Tuesday but remained fragile after US President Donald Trump's latest threat to raise tariffs on Chinese goods shocked financial markets and fueled worries that trade talks might be derailed. As Japan has greater shares on the Asian trading markets, it is likely to get affected by the weakness of financial markets and the US-China trade war. Japan's Final Manufacturing PMI report was published today showing an increase to 50.2 from the previous figure of 49.5, while experts forecast the reading to be unchanged. Moreover, tomorrow's Monetary Base report is expected to reflect a decrease to 3.6% from the previous value of 3.8%.
Though the Bank of Japan remained somehow optimistic while chasing the inflation target of 2%, the global impact on the economy is likely to result in a further slowdown.
As for the current scenario, the Japanese yen did manage to gain certain momentum amid positive economic data. However, the US dollar might strengthen as well amid such reports as the Employment Change and the Advance GDP.
Now, let us look at the technical view. The price has recently bounced off the 110.50 area with a daily close, and it is expected to lead the price higher towards the 112.00 area in the coming days. Although, if the upcoming US CPI report is pessimistic, the pair may consolidate without any clear trend.
