The unexpected stall in U.S. PPI data strengthens the case for a sooner-than-expected Fed rate cut, possibly as early as September. Meanwhile, Japanese inflation remains sticky, and recent BOJ minutes hinted at a potential normalization of monetary policy, particularly around wage growth and JGB yield controls. As the rate differential narrative begins to compress, USD/JPY faces downward pressure.

Moreover, USD/JPY is highly sensitive to real rate expectations, which have recently rolled over. If U.S. yields soften further on weaker inflation and growth data, the yen already undervalued on a REER basis could begin to claw back gains.

SHORT USDJPY

Jul 17 2025