• USD/JPY lost the 20-day SMA at 139.44 and trades at the 139.35 area.
• The US Producer Price Index decreased by 0.3% MoM in May.
• Investors await Fed's decision and revised dot plots.

The USD/JPY lost over 60 pips during the New York session as the Greenback faced severe selling pressure after Producer Price Index (PPI) data from the US showed lower-than-expected ‘factory gate’ inflation. US bond yields are in decline, favoring the JPY, Ahead of the Federal Reserve’s (Fed) decision at 18:00 GMT.

Weak PPI data made US bond yields decline, and stocks rise

The US Bureau of Labor Statistics released on Tuesday the PPI report that showed a decrease of 0.3% MoM in May, more than the 0.1% slide expected; the YoY measure fell to 1.1%. On the other hand, the Core figure rose 0.2% MoM in the same period matching expectations, while the yearly came in at 2.8%.

As a result, the US bond yields have weakened across the curve and applied pressure to the USD. The 10-year bond yield fell to 3.79%, while the 2-year yield sits at 4.62% and the 5-year yield at 3.96%, marking a 1.58% slide, respectively. Elsewhere, the S&P 500 index (SPX) rose to its highest level since April 2022 and applied further pressure to the US Dollar as riskier assets drove away demand from the safe-haven Greenback and the JPY.

Regarding the Fed’s decision, markets continue to discount a no hike, and investors will look for clues regarding forward guidance in the updated macro forecast, the revised dot plots and in Chair Powell’s press conference. As for now, analysts expect that the Fed will resume tightening in the next July meeting, where market participants are expecting a 25 basis point (bps) hike.