US Dollar Forecast: USD/JPY Reverses on SCORCHING PPI, Fed Cut Still Likely

US Dollar Key Points

• PPI climbed 3.3%, the fastest pace since February 2025. The core PPI—excluding food, energy, and trade services—also jumped by the most since 2022.
• Economists attribute much of the acceleration to higher import costs stemming from recent US tariffs, but the Fed is still likely to cut interest rates next month
• USD/JPY has reversed a more than 100-pip intraday drop to trade back in the middle of its recent 145.80-149.00 range

This morning’s US PPI report showed that wholesale prices rose sharply in July, posting their largest monthly increase in three years and signaling potential tariff-related inflationary pressures. The Producer Price Index (PPI) jumped 0.9% month-over-month—well above the 0.2% forecast—after holding flat in June. On an annual basis, PPI climbed 3.3%, the fastest pace since February 2025. The core PPI—excluding food, energy, and trade services—also jumped by the most since 2022, reinforcing signs of broad-based price pressures.

The surge was led by services, which rose 1.1%, their largest gain since March 2022. Other notable service price gains were seen in portfolio management, securities brokerage, and traveler accommodations. Meanwhile, goods prices advanced 0.7% m/m, driven by a 1.4% rise in food costs. Fresh and dry vegetables alone surged nearly 39% (!!), with additional boosts from meats, diesel fuel, and jet fuel.

In their initial reads of the release, economists attribute much of the acceleration to higher import costs stemming from recent US tariffs. While businesses had largely absorbed these costs earlier in the year, many may now be passing them on to customers to protect margins.

The PPI is closely watched because several components feed into the Fed’s preferred inflation gauge, the PCE price index. Earlier this week, traders were talking about the potential for a 50bps double interest rate cut from the Federal Reserve next month, but today’s scorching hot PPI report could complicate the Fed’s interest rate cutting plans, or at least the timeline for rate cuts.

Ultimately, the US central bank is still likely to cut interest rates by 25bps at its September meeting, limiting the immediate market reaction to the stunning print. Instead, the elevated inflation reading, if maintained, is more likely to impact expectations for additional interest rate cuts in October and December.

US Dollar Technical Analysis: USD/JPY Daily Chart

Source: StoneX, TradingView

From a technical perspective, the US dollar is now the strongest major currency on the day, just eclipsing the Japanese yen (which is rallying after US Treasury Secretary Bessent pressured the Bank of Japan to raise interest rates).

As of writing, USD/JPY has reversed a more than 100-pip intraday drop to trade back in the middle of its recent 145.80-149.00 range between the 100-day MA and 200-day MA. While economic data and central bank expectations will continue to impact the pair moving forward, technical traders may do well to watch that range for a potential breakout to signal the next higher-probability move for the pair, with a bullish break above the 200-day MA opening the door for a continuation toward the 50% Fibonacci retracement in the mid-151.00s and a bearish breakdown, if seen, initially targeting the late June lows near 143.00.

-- Written by Matt Weller, Global Head of Research

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