USD/JPY rallies to seven-week high as focus shifts to US PCE and Tokyo CPI

• USD/JPY extends gains for a second day on broad US Dollar strength.
• US GDP was revised higher to 3.8% in Q2, while weekly Jobless Claims fell to 218,000.
• Market focus turns to Friday’s US Core PCE and Tokyo CPI releases.

The Japanese Yen (JPY) loses ground against the US Dollar (USD) on Thursday, with USD/JPY surging to its highest level in seven weeks. At the time of writing, the pair is trading around 149.75, up nearly 0.55% on the day, extending its rally for a second straight day after a batch of stronger-than-expected US economic data boosted the Greenback.

According to the Bureau of Economic Analysis, the US Gross Domestic Product (GDP) expanded at a 3.8% annualized pace in Q2, stronger than both the 3.3% preliminary estimate and market expectations of 3.3%, supported by robust consumer spending and a steep fall in imports. The Q2 core Personal Consumption Expenditures (PCE) price index embedded in the Gross Domestic Product (GDP) report rose 2.6%, slightly higher than both the previous estimate and market forecasts of 2.5%.

Weekly Initial Jobless Claims fell to 218,000 for the week ending September 20, below expectations of 235,000 and down from the prior week’s 232,000. Durable Goods Orders were also surprising to the upside, new orders jumped 2.9% in August, beating expectations of 1.5% and rebounding from a revised 2.7% decline in July. Orders excluding defense rose 1.9%, compared with a 2.5% drop in the previous month.

The upbeat data flow reinforces expectations that the Federal Reserve (Fed) may tread cautiously with further easing, limiting prospects for aggressive near-term cuts. According to the CME FedWatch Tool, market pricing for an October rate cut slips to 85% following the releases, down from around 94% before the data.

On the Japanese side, the Bank of Japan (BoJ) published minutes of its July 30-31 meeting earlier Thursday. Policymakers reaffirmed the overnight call rate target around 0.5% and continued gradual JGB purchase reductions, in line with June’s plan. Members acknowledged that the core Consumer Price Index (CPI) has been running around 3.0-3.5% and that services inflation remains sticky due to rising personnel costs. A few policymakers argued that the central bank should be ready to discuss the timing of future rate hikes if price pressures persist.

Looking ahead, market focus shifts to Friday’s release of the US Core PCE Price Index, which will provide fresh clues on the policy outlook. In Japan, the Tokyo CPI for September is also due on Friday and will be closely watched for signals on underlying inflation trends and the BoJ’s next policy steps.