USD/JPY hovers near 158.00 with focus on Japan’s National CPI

The USD/JPY pair trades close to seven-week high near 158.00 in Wednesday’s European session. The rally appears to have paused for the time-being amid uncertainty over Federal Reserve’s (Fed) interest rate path and the release of the Japan’s National Consumer Price Index (CPI) data for May, which will be published on Friday.

Market sentiment remains positive for risk-perceived assets amid growing speculation that the Fed will start reducing interest rates from the September meeting. S&P 500 futures have posted some gains in European trading hours. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, edges down to 105.15.

Market expectations for the Fed to begin reducing interest rates from the September meeting strengthen after the United States (US) Retail Sales data for May missed estimates. Monthly Retail Sales grew by 0.1%, slower than expectations of 0.2%. The Retail Sales report also showed that households cut discretionary spending, which indicates weak purchasing power due to high inflation interest rates.

Meanwhile, investors also expect that the Fed will reduce interest rates twice this year against one projected by policymakers in their latest dot plot. However, officials emphasize keeping interest rates at their current levels until they get see good inflation data for months.

On the Tokyo front, the Japanese Yen weakens even though Bank of Japan (BoJ) minutes for the June meeting showed that Governor Kazuo Ueda advocated for increasing interest rates sooner than expected. BoJ Ueda favors tightening the policy further due to upside risks to inflation prompted by the weak Yen. Japan’s exports have become competitive in global markets and cost of imposts have risen, which could push price pressures higher.

This week, the major trigger for the Japanese Yen will be the National CPI data. Annual National CPI excluding Fresh Food is expected to have accelerated to 2.6% from the prior reading of 2.2%.