USD/JPY surrenders modest intraday gains to 143.00 after BoJ Tamura’s solicited remarks

• USD/JPY attracts fresh sellers following intraday gains near 143.00.
• BoJ Tamura’s dovish comments boost the JPY and put downward pressure on the pair.
• Good growth in USD demand and upbeat market sentiment provide some support.

USD/JPY is failing to capitalize on the modest gains of the Asian session to 143.00 and for now appears to have stalled its nice recovery from a near nine-month low hit the previous day. Spot prices are currently trading around the mid-143.00s, or at the lower end of the daily range, and appear vulnerable to an extension of the recent, well-established downtrend seen over the past two months or so.

Despite further signs that US consumer prices are easing across the board, the core CPI print indicated that core inflation remains sticky and dashed hopes for an outsized 50 basis point (bps) rate cut by the Reserve Federal (Fed) next week. This, in turn, helps the US dollar (USD) regain positive traction and return closer to the monthly peak. Apart from this, risk-on momentum undermined the Japanese yen (JPY) and acted as a tailwind for the higher USD/JPY pair.

The JPY was further weighed down by an unexpected 0.2% drop in Japan’s producer price index (PPI) in August. In addition, the annual rate fell more than expected to 2.5% during the reporting month, from 3.0% in July. That said, comments from Bank of Japan (BoJ) board member Naoki Tamura, saying the road to an end to easy policy is still very long, reaffirms bets for a further rise in borrowing costs by the end of this year and helps loss limitation for JPY.

Additionally, markets have fully priced in a move to cut the Fed rate by 25 basis points at its next policy meeting on September 17-18, marking a big divergence from the BoJ’s call. This in turn prompts a fresh sell-off around the USD/JPY pair and is proving to be a key factor behind the intraday pullback. Traders are now looking forward to the US PPI release for further impetus, although the fundamentals suggest the path of least resistance for spot prices is to the downside.