USD/JPY Sees Yen Shorts Cleansed Amid US Inflation Focus

The USD/JPY pair has seen a significant reduction in yen shorts following Japan's Ministry of Finance and US Treasury intervention in late July, potentially reducing positioning risk.

However, all eyes are now on this week's US inflation data, which could significantly shift expectations for Fed hikes over the next 12 months. The report is expected to show both underlying consumer inflation and upstream producer price pressures remaining above the Fed's 2% target.

A strong print would make it harder for markets to keep whittling away at rate hike expectations, currently at 42.5 basis points of hikes out to the June meeting next year, down from a high of 62 basis points following Friday's payrolls report.