ING: The JPY - FJElite

Tokyo CPI for August is released at 00:30 BST tomorrow. The headline is expected to inch lower to 1.9% (from 2% in July) and core to 1.8% (from 1.9%). A close-to-consensus print should not derail market confidence on a rate hike by the Bank of Japan on 18 September (21bp currently in the price), after US Treasury Secretary Scott Bessent called for a policy follow-up to FX intervention and July CPI surprised on the upside.

The two-year USDJPY swap rate differential has shrunk by around 35bp in the past 30 days, but the yen has failed to attract buyers below 158. With a lot of BoJ tightening in the price, the risks are that officials disappoint markets on the dovish side even if they hike in September.

Ultimately, a dovish Fed repricing remains the most tangible path to keep USD/JPY below 160.