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USD/JPY faces barricades around 134.50 ahead of Japan’s labor data and US PCE Inflation

The USD/JPY pair has faced strong hurdles around 134.50 after attempting a mild recovery from a monthly low of around 134.20. The asset extended its downside move on Thursday after violating the critical support of the July 22 low at 135.57. A sheer downside move in the asset is backed by broader weakness in the US dollar index (DXY) and higher consensus for Japanese employment data, which is due on Friday.

Japan’s unemployment rate may trim to 2.5% vs. the prior release of 2.6%. Also, the Jobs/Applicants ratio is expected to increase to 1.25 from the former figure of 1.24. An occurrence of the same will strengthen Tokyo further.

The release of the downbeat US Gross Domestic Product (GDP) data has resulted in a laborious job for Federal Reserve (Fed) policymakers. The deadly combination of a solid labor market and upbeat economic data were major drivers of confident Fed policymakers.

The strength of economic catalysts was empowering the Fed for tightening monetary policy unhesitatingly. Now, less-than-expected hawkish guidance by the Fed and vulnerable US economic data are responsible for the vulnerable performance of the DXY. The DXY has tumbled to near 106.00 and is likely to surrender the cushion sooner rather than later.

In today’s session, the release of the US Personal Consumption Expenditure (PCE) data will be the show-stopper event. Fed’s preferred inflation indicator to judge the extent of price pressures in the economy is seen at 6.7%, higher than the former figure of 6.3%. This will keep the need for more policy tightening measures at elevated levels.

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