USD/JPY Holds Near Seven-Month Highs Amid Fed and BoJ Expectations

The Japanese Yen has trimmed its gains against the US Dollar in recent trading sessions, despite remaining close to seven-month highs. The USD/JPY pair is currently trading above 153.50, after bouncing from last week's lows at 152.90.

According to analysts at ING, the US Dollar gained momentum on Friday due to a stronger-than-expected Consumer Price Index (CPI) report, which confirmed that inflation remains sticky and core inflation rose at its fastest pace in four months in August.

This has boosted expectations of a Federal Reserve interest rate hike, with some modestly higher rates seen as beneficial for the Dollar. On the other hand, investors are bracing for a hawkish hike by the Bank of Japan (BoJ) on Friday, which could limit further downside in USD/JPY.

Strategists at OCBC highlight that markets are largely positioned for a 25bp hike later this week, and that additional JPY strength will depend not only on the policy move itself but also on the tone of the guidance and the trajectory of US rates and the Dollar.