US inflation figures due today may sway Fed rate expectations, impacting USD/JPY and broader risk sentiment.
The Japanese Yen (JPY) rebounded to near 159.00 against the US Dollar (USD) after hitting a low of 159.45, outperforming in a low-volatility session. Market focus shifts to the US Consumer Price Index (CPI) report, which could influence Federal Reserve policy expectations.
Analysts expect July’s annual CPI to ease to 3.4% from 3.5% in June, while core CPI is projected to slow to 2.5% from 2.6%. Fed funds futures currently price a 50% chance of a 25bps hike in September, with softer data likely weakening the USD and boosting risk assets.
A stronger-than-expected CPI could trigger a short-term USD rally, though limited scope for further hawkish repricing may cap gains. The Yen also draws support from the Bank of Japan’s hawkish stance.