A softer inflation outlook could raise investor expectations of a September Fed rate cut.

Furthermore, economists expect producer prices to rise by 0.1% in May after an increase of 0.5% in April. Additionally, economists predict core producer prices to advance by 0.3% after a rise of 0.5% in April.

Producer prices are a leading indicator of consumer price inflation. Producers may reduce prices in a weakening demand environment, lowering consumer prices. Downward trends in producer prices may also raise investor expectations of a September Fed rate cut.

Beyond the numbers, investors should monitor FOMC member chatter. Fed Vice Chair John Williams is on the calendar to speak. Comments regarding inflation and the interest rate trajectory need consideration.

Short-term Forecast

Near-term trends for the USD/JPY will hinge on US labor market data, US producer prices, and the Bank of Japan interest rate decision. Weaker-than-expected US data and a hawkish BoJ could tilt monetary divergence toward the Yen and signal a move toward 150.

USD/JPY Price Action

Daily Chart

The USD/JPY sat comfortably above the 50-day and 200-day EMAs, affirming the bullish price signals.

A USD/JPY return to 157 could give the bulls a run at the 159 handle. A break above 159 could signal a move toward the April 29 high of 160.209.

Bank of Japan commentary, US producer prices, US jobless claims, and Fed speeches need consideration.

Conversely, a USD/JPY drop below the 156 handle could give the bears a run at the 50-day EMA. A fall through the 50-day EMA could bring the 151.685 support level into view.

The 14-day RSI at 54.29 indicates a USD/JPY move to the April 29 high of 160.209 before entering overbought territory.