USD/JPY remains soft amid a reassessment of the US-Japan interest-rate outlook. The pair has fallen from its July high, with a break below the ¥155 area coming into focus, while upcoming economic data releases, including CPI, are expected to determine its direction.
USD/JPY has remained soft against the backdrop of divergent monetary-policy outlooks in the US and Japan, falling about 5% from its July high to around ¥154.59. From a technical perspective, the pair has tested the key support area around 155.00 3 times, and a break below on a closing basis could open the way for tests of the 152.00 and 150.00 levels.
While expectations of a September rate hike by the Federal Reserve had temporarily strengthened, the BOJ's relatively hawkish stance and concerns about currency intervention have encouraged yen buying, offsetting the impact of a narrowing US-Japan interest-rate differential. The BOJ governor is reportedly considering options including an additional rate hike at the September meeting, with the possibility of a 25-basis-point hike at the policy meeting on 17–18 September being discussed.
The key events ahead are the release of the US August CPI and PPI data. A CPI reading above market expectations would raise the probability of a Fed rate hike and could support a rebound in USD/JPY. Conversely, a slowdown in inflation could keep expectations of a BOJ rate hike elevated, narrowing the US-Japan interest-rate differential further and potentially deepening USD/JPY's decline.
Technically, a break above the resistance near 157 could lead to tests of 158.10 and then the key 160.00 level, but a move into a new downtrend remains possible depending on whether the pair falls below 155.00.