USD/JPY Outlook Hinges on Inflation Data After Payrolls Revive Fed Hike Bets

Last week's violent move lower in USD/JPY was driven by intervention innuendo, confused Fed messaging, and a hawkish BOJ repricing. However, an unusually strong August payrolls report revived September Fed hike expectations.

The upcoming inflation data will determine whether the rebound sticks. The core figures need to print in line with or above expectations for a September hike to be cemented.

Average hourly earnings growth, services inflation excluding housing and energy services, and wage pressures are crucial areas of focus in this week's US calendar.

USD/JPY remains closely linked to US Treasury yields. Strong Treasury auction demand is necessary to prevent upward pressure on yields and potentially limit upside in the pair.