Yen remains steady despite inflation update
The Japanese yen showed little reaction near the end of the trading week, even after the release of the latest US PCE inflation figures. USD/JPY stayed almost unchanged, with movement close to 0.05%, reflecting a short term phase of indecision in the currency pair.
The limited reaction suggests that traders are balancing two forces. The yen has not yet shown a convincing recovery, while the US dollar has paused after several sessions of strength. As a result, neutral price action could remain a dominant feature for USD/JPY in the coming sessions.
Core PCE confirms persistent inflation
The United States published its Core PCE data during the session. This indicator tracks changes in consumer prices while excluding food and energy, making it one of the key measures followed by the Federal Reserve.
The figure came in at 3.4%, matching market expectations and slightly exceeding the previous reading of 3.3%. Although the result did not surprise investors, it confirmed that inflation pressures remain present in the US economy.
The data brought some calm to rate expectations, but it did not remove the broader concern. Inflation has still not slowed enough in 2026 to clearly shift the Federal Reserve away from a higher rate outlook.
Fed expectations ease only slightly
The US dollar lost some momentum after the in line inflation figure, but the Federal Reserve outlook remained largely unchanged.
According to the CME Group probability table referenced in the market data, the chance of a rate hike moved from 49.32% to 47.80% after the PCE release. This represents only a moderate adjustment and does not meaningfully alter the broader dollar scenario.
For now, traders continue to view another rate increase as possible over the next few months, which helps preserve underlying confidence in the US dollar.
Yield gap continues to favor the dollar
The difference between US and Japanese bond yields remains a key factor behind USD/JPY strength. The US 10 year Treasury yield has retreated toward the 4.4% area, but the Japanese 10 year bond yield has also moved lower, toward 2.6%.
This keeps a wide spread between both markets. As long as the US bond market continues to offer a stronger yield advantage, dollar denominated assets may remain more attractive than yen based alternatives.
Recent economic data and the slight decline in US yields have therefore not been enough to trigger a significant increase in demand for the Japanese yen.
Bank of Japan outlook remains unclear
Another factor limiting yen strength is uncertainty around the Bank of Japan. Although the central bank has already raised its benchmark rate to the 1.00% area, markets remain unsure whether another move will come at the late July decision.
The contrast with the Federal Reserve remains important. While the Bank of Japan’s path is still uncertain, the Fed continues to be associated with a higher rate outlook.
If this policy gap persists, the interest rate differential could continue to pressure the yen and support USD/JPY buying over the next few weeks.
Bullish structure still dominates the chart
From a technical perspective, the broader USD/JPY trend remains bullish. For several months, the most important structure has been a long term ascending trendline, which continues to guide the pair’s movement.
The absence of deep bearish corrections has allowed this bullish pattern to remain intact. If sellers fail to build stronger momentum in the coming sessions, the upward trend could continue extending.
However, the recent loss of buying strength leaves room for short term pullbacks, especially if traders decide to take profits near major resistance areas.
RSI and MACD still support buyers
The RSI remains above the neutral 50 level, showing that buying pressure is still present. At the same time, the indicator is also above the 70 overbought area, which signals stretched bullish momentum and increases the risk of short term corrections.
The MACD histogram also remains above the zero line. This means short term moving averages continue to favor a bullish bias, keeping buyers in control as long as the indicator stays positive.
Key levels to watch in USD/JPY
The first major upside level is 161.838. This resistance is connected to the 2024 highs and currently represents the most important barrier for buyers. A sustained breakout above this point could create new relevant highs and reinforce the bullish outlook for the coming weeks.
The 160.324 area is the nearest technical barrier. This level is tied to the recent neutral zone and also aligns with an important psychological area. It may become relevant if USD/JPY begins a short term bearish correction.
The main support sits at 159.411, a level that coincides with the 50 period simple moving average. A decisive break below this area could weaken the current bullish trendline and open the door to a more important selling phase.
