USD/JPY Pairs Tests Channel Top Amid Policy Gap and Upcoming CPI Data

The USD/JPY pair is trading at 159.27, up roughly 1.4% on the session after breaking back above 159.00 and testing the top of a well-defined channel that has contained it since August 3.

This channel runs from approximately 157.05 at the bottom to about 159.25 at the top, with spot sitting marginally above the upper boundary.

The yen has retraced about half of its gains made during its intervention-driven rally, which peaked near 164 in July and collapsed to 155.23 by August 3 after a joint operation involving the United States and Japan.

The mechanism behind the retracement is the policy gap, with the Federal Reserve holding its target range at 3.50% to 3.75%, while the Bank of Japan's policy rate remains at 1.00%.