Markets now price a 40% chance of a Fed rate hike by year-end after strong US inflation and retail sales data.
USD/JPY rose 0.11% to 158.55 on Friday, extending its rally for a fifth consecutive day. The move follows stronger-than-expected US inflation data, with April CPI accelerating to 3.8% YoY and PPI surging 6% annually. Retail sales also grew 0.5% MoM, reinforcing US economic resilience.
US Treasury yields climbed, with the 10-year yield reaching its highest level in nearly a year. The two-year yield surpassed 4%, bolstering the dollar. Fed rate hike expectations surged, with markets now pricing a near 40% chance of a hike by year-end, up from less than 15% a week ago.
Geopolitical tensions in the Middle East added further support to the USD, while intervention risks limited the yen’s downside. The pair’s momentum reflects shifting monetary policy expectations and robust US economic data.