Japanese Yen slips as US Dollar stabilizes, US PCE in focus

The Japanese Yen experienced a slight decline as the US Dollar steadied on Monday, following last week's market turbulence. Geopolitical tensions resurfaced with the U.S. set to expand secondary sanctions against Iran. The pair was trading near 159.13, bouncing back from a low of 158.55. Hawkish Bank of Japan (BoJ) forecasts provided limited support, while fiscal anxieties remained the driving force in the market.

The BoJ is expected to raise interest rates in September. Recent inflation data has backed the case for higher rates. Strategists at Scotiabank believe the market narrative is shifting from the official intervention that dominated the summer to a focus on fundamentals ahead of the BoJ meeting on September 18. The crucial aspect for the BoJ is its communication, as the Bank's tone of managing expectations for the rate path into the year-end and early 2027 poses the greatest risk.

Meanwhile, the US Dollar stabilized after the U.S. Treasury expanded liquidity-support buybacks for longer-dated government bonds, reigniting concerns about the U.S. fiscal outlook and rising debt. The Greenback's value against a basket of six major currencies hovered around 98.95 on Monday, attempting to reclaim the 99.00 psychological level.

Traders will closely watch the US Personal Consumption Expenditures (PCE) Price Index on Wednesday for insights into the Federal Reserve's (Fed) September decision. A softer inflation reading might bolster expectations of the Fed leaving interest rates unchanged next month, prompting attention to Fed Chair Kevin Warsh's Jackson Hole speech on Friday.