A volatile start to the week for USD/JPY, falling some 1.7% during the APAC session to briefly break through the bottom of the pre-U.S.
retail sales range (146.00), to hit a low of 145.20.
That said, with news flow light and the summer lull keeping volumes muted, this price action may be more noise than signal.

Looking ahead, the two highlights will be speeches from Bank of Japan Governor Kazou Ueda and Federal Reserve Chair Jerome Powell, who are both set to deliver their latest remarks on monetary policy on Friday.

Ueda will be testifying to parliament regarding last month’s rate hike.
Recall, that the BoJ governor had followed up the hike with a very hawkish stance, which subsequently, exacerbated the carry unwind as well as contribute to the rout in Japanese equities.

Since then, Deputy Governor Shinichi Uchida dialed down the hawkish tone, underpinning the rally from 141.70 in USD/JPY.
Thus, should Ueda offer any dovish remarks in similar vein to Uchida, this could put the yen back on course for a test of recent highs at 149.40.

Meanwhile, the bar has been set high for Powell to be dovish, which in turn may limit how much more downside there is for the dollar in the short-run.
Currently, Fed pricing has baked in 95bps of easing by year-end, which suggests that the Fed would have to cut rates by 50bps in at least one of the final three meetings.

The recent spate of U.S. data has pushed back against the growth scare narrative that stemmed from the payrolls report.
The data suggests that the most likely outcome for the Fed’s September meeting is a 25bps cut, which is what Powell will likely guide towards at the Jackson Hole symposium.

Thus, by doing this, the Fed chair would disappoint expectations of a 50bps September cut, prompting a modest bout of dollar strength.

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