The upcoming week for the USD/JPY currency pair is set to be heavily influenced by US inflation data. Key reports, including Wednesday's Consumer Price Index (CPI) and Thursday's Producer Price Index (PPI), are expected to shape Treasury yields and overall risk appetite.
Markets are currently anticipating more than three Federal Reserve rate hikes by the middle of next year. For these expectations to hold, inflation needs to remain elevated and persistent. However, the recent decoupling of USD/JPY from its traditional strong link with US Treasury yields adds complexity to the outlook.
The reaction in riskier assets may now be as crucial as movements in yields themselves. This shift complicates the forecast for the USD/JPY pair, making it harder to predict its direction based solely on inflation data.