Yen Surges to Seven-Month High, Selloff Extends for USD/JPY

The US dollar's recent gains have been short-lived as it faces pressure from the yen, which has reached a seven-month high. The USD/JPY selloff is attributed to a combination of factors, including a hawkish repricing in Fed interest rate expectations and a decline in carry trades ahead of the BoJ rate decision.

The market's attention will shift to the upcoming US CPI data release, which could influence the dollar's trajectory. A soft or in-line CPI reading may weaken the dollar, while an upside surprise in core monthly inflation data could trigger another rally on a hawkish repricing.

BoJ Governor Ueda's recent comments have been seen as less hawkish than expected, with him mentioning that the BoJ will assess the cumulative impact of its previous rate hikes on the economy. The uptrend in USD/JPY is unlikely to change without a dovish repricing in Fed interest rate expectations or a faster BoJ tightening pace.