USD/JPY Capped Below 159.50 as Fed Rate Hike Expectations Cool

The USD/JPY pair is trading with a mild negative bias below 159.00s during the Asian session on Friday, but remains close to its nearly two-week high reached the previous day.

Cooling US inflation has tempered expectations for an immediate rate hike by the Federal Reserve (Fed), keeping the US Dollar (USD) depressed and contributing to capping the upside for the USD/JPY pair. The Japanese Yen (JPY) is drawing some support from bets for further policy tightening by the Bank of Japan (BoJ).

Despite borrowing costs in Japan remaining significantly lower compared to other major economies, including the USD, the so-called JPY carry trade remains active.