Slightly-below-forecast U.S. May CPI hasn't heightened Fed rate cut expectations -- which had already priced in at least two cuts this year -- enough to get USD/JPY below the overnight lows because the market awaits weightier retail sales data Friday and the June 19 FOMC meeting.
Today's 108.22 low retraced 61.8% of the rebound from Friday's 107.88 post-NFP miss low to yesterday's 108.80 peak propelled by the U.S. lifting its Mexican tariffs threat.
Failure to take out overnight lows and bounces in Treasury yields off intraday lows is feeding mean reversion trading.
Expectations are high for May retail sales at 0.7% m/m and a control group rise of 0.4%, after -0.2% and unchanged readings in April.
Following dour June U.S. employment data, traders and the Fed will be watching for any signs of weaker consumption.
But the main weight on USD/JPY is rising U.S. and Chinese protectionism and the potential for escalation if the June 28-29 G-20 meeting doesn't produce at least a truce .
China is ramping up stimulus to cushion the trade war blow, having seen only modest credit expansion in May nL4N23J26L.
Options pricing suggests 108 will hold before Friday's retail sales, while the 108.81 weekly kijun and 109 expiries should cap.