US Dollar Rebound Fails as Japanese Yen Gains Momentum Ahead of BoJ Decision

The US Dollar's initial rally following the release of August inflation data quickly fizzled out against the Japanese Yen, leading to a decline in the USD/JPY pair by 0.54%. The Consumer Price Index (CPI) rose 3.4% year-over-year, matching market expectations, while monthly core inflation exceeded forecasts with a 0.3% increase.

The US Dollar's initial strength was driven by the stronger-than-expected monthly increase in core inflation, but this momentum was short-lived against the Japanese Yen, which remains supported by expectations surrounding the Bank of Japan's upcoming monetary policy decision.

Markets expect the central bank to raise interest rates by 25 basis points to 1.25%, bringing borrowing costs to their highest level in 31 years. The potential rate hike has kept the Japanese Yen strong, outweighing the initial rebound in the US Dollar and putting pressure on the USD/JPY pair around 153.60.