USD/JPY fell victim to unexpectedly soft inflation in an otherwise strong second-quarter U.S. GDP report nLNSRIEEHE, which will forestall any resumption of this year's dollar rebound until the BOJ and Fed meetings next week. If that's not enough, U.S. nonfarm payrolls and ISM reports also loom next week.
USD/JPY is drifting away from yesterday and today's 111.25 highs by the daily Kijun at 111.27. Key 55-DMA support at 110.53 will probably hold until next week's events. While core CPI remains at the Fed's 2 percent target, which is dollar supportive, expectations that the BOJ will adjust or discuss policy changes next week to bolster banks present a yen-positive risk. Ten-year JGB yields again pressed against the BOJ's 10bp range top overnight, inducing two rounds of central bank bond buying.
Speculation about the BOJ allowing the yield curve to steepen, sooner or later, is keeping JGBs under pressure and supporting the yen, especially on the crosses.
For USD/JPY, the key may be whether T-note yields can surpass buyers at 3 percent after next week's FOMC and data releases.
If USD/JPY breaks below the 55-DMA, the weekly Kijun at 108.87 will be targeted.
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