USD/JPY declines to 142.00 as soft US annual PPI weighs on US Dollar

• USD/JPY slumps to near 142.00 as the US Dollar corrects after the US PPI report release.
• The US headline and core PPI for August came in softer-than-expected.
• BoJ Tamura sees interest rates rising to at least 1%.

The USD/JPY pair falls sharply to near 142.00 in Thursday's North American session. The asset declines as the US Dollar (USD) faces selling pressure after the release of the softer-than-expected United States (US) annual Producer Price Index (PPI) data for August.

The US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, corrects to near 101.60.

The PPI report showed that the annual headline produce inflation grew by 1.7%, slower than estimates of 1.8% and the prior release of 2.1%, downwardly revised from 2.2%. The core PPI - which excludes volatile food and energy prices - rose steadily by 2.4%, at a slower pace than expectations of 2.5%. The impact of the US PPI data appears to be insignificant on market speculation for the Federal Reserve (Fed) interest rate cut path for next week's policy meeting.

According to the CME FedWatch tool, the probability for the Fed reducing interest rates by 50 basis points (bps) to 4.75%-5.00% in September remains at 13% as they were before the US PPI data release.

Going forward, investors will focus on the preliminary Michigan Consumer Sentiment Index data for September, which will be published on Friday. The sentiment data is estimated to have remained almost steady at 68.0 from the prior release of 67.9.

On the Tokyo front, the Japanese Yen (JPY) strengthens as Bank of Japan (BoJ) policymaker Naoki Tamura delivers a hawkish interest rate guidance. Tamura sees interest rates rising to at least 1% by the early second half of 2025. Tamura refrained from providing a pre-set interest rate hike path.