USD/JPY sits near weekly high, remains below mid-147.00s ahead of US inflation data

The USD/JPY pair gains some positive traction for the second successive day and climbs to a fresh weekly high during the first half of trading action on Wednesday. Spot prices, however, remain below mid-147.00s through the early European session as traders keenly await the US consumer inflation figures before placing fresh directional bets.

The crucial US CPI report is scheduled for release later during the early North American session and will play a key role in influencing the Federal Reserve's (Fed) policy outlook. This, in turn, will drive the USD demand and help investors determine the near-term trajectory for the USD/JPY pair. In the meantime, growing acceptance that the Fed will keep interest rates higher for longer assists the USD to attract some buying and acts as a tailwind for the major.

Investors seem convinced that the US central bank will stick to its hawkish stance and the bets were reaffirmed by the upbeat US macro data released last week, which pointed to a resilient economy. Furthermore, the recent rally in Crude Oil prices has been fueling concerns about the inflation outlook and supports prospects for further policy tightening by the Fed. The outlook remains supportive of elevated US Treasury bond yields and continues to underpin the buck.

The Japanese Yen (JPY), on the other hand, is weighed down by softer domestic data, showing that annual wholesale inflation, as measured by the Corporate Goods Price Index (CGPI), slowed in August for the eighth straight month. The index continued with its downward trend from the peak of 10.6% YoY rate recorded in December and eased to 3.2% during the reported month. The data ensures that the Bank of Japan (BoJ) will maintain the status quo until next summer.

This, along with the fact that the immediate market reaction to BoJ Governor Kazuo Ueda's weekend comments on the negative interest rate policy was short-lived, suggests that the path of least resistance for the USD/JPY pair is to the upside. Hence, a subsequent move up towards the YTD peak, around the 147.85 area set last Friday, looks like a distinct possibility. Moreover, any corrective pullback might be seen as a buying opportunity and remain limited.

Technical levels to watch