USD/JPY is down a full cent on the heels of the CPI report in response to a downside surprise in the May inflation reading.
It's part of a broad wave of US dollar selling across the board and a strong bid in bonds, led by the front end. The Fed funds market is now pricing in 50 basis points of easing by year-end with a first cut 80% likely in September.
The lower CPI reading was led by a number of components and auto insurance finally stopped rising. Core services ex-shelter fell slightly on the month as well.
One sources of ongoing strength continues to be housing, which rose 0.4% m/m but market rates are lower and that may ultimately give the FOMC more confidence that prices will continue to decline from the 3.3% y/y headline and 3.4% y/y core readings.
Overall, the this brings the three-month core CPI annualized rate to 3.3% from 4.1% previously.
Before the report, there was talk that some FOMC officials would wait for the data before placing their final dots on the dot plot and this clears the way for many of them to signal two cuts this year.