Japan Observes Long Weekend, BoJ To Announce MonPol Decision Thursday

USD/JPY pulled back from 24-year highs on Friday, driven by broad-based greenback sales, with the yen sitting near the bottom of the G10 pile. As a reminder, Japanese financial markets are shut for a public holiday today.

• The U.S. dollar went offered as participants judged that recent rounds of Fedspeak were indicative of diminished odds of a 100bp rate hike at the next FOMC meeting, while the Uni. of Mich. survey showed that long-term inflation expectations fell to a one-year low.
• U.S./Japan 10-year yield gap tightened on Friday as participants dialled back hawkish Fed bets. BoJ Policy Board meets this Thursday and is set to keep interest rates at rock-bottom levels. It will be the final policy review of Goushi Kataoka, the usual dovish dissenter. Two days later, the Bank's most ardent reflationist will be replaced by Hajime Takata, believed to be holding centrist views on monetary policy.
• Later this week, focus will turn to the latest set of national CPI figures. Core inflation is expected to have accelerated a tad to +2.2% Y/Y in June from +2.1% prior. Still, the central bank will likely stick with its assessment, that the recent price increases stem from supply-side factors, rather than a pick-up in wages sought by policymakers.
• The wave of COVID-19 infections is rising, putting a strain on Japan's healthcare system. The daily case count hit a record on Saturday, with Tokyo and Okinawa reporting hospital bed occupancy rates of 30% and 60% respectively. There are no signs of any imminent tightening of restrictions, after PM Kishida said last week that he wasn't planning any such moves.
• USD/JPY trades at Y138.52, a touch lower on the day. A dip through Jul 14 low of Y137.28 would turn focus to Y134.27, the low print of Jun 23. Bulls look to a rally towards the 1.00 proj of the Jun 16 - 22 - 23 price swing at Y139.48, followed by the Y140.00 round figure.