On Monday (May 20), FOMC members Michael Barr and Raphael Bostic were among a chorus of Fed speakers wanting more confidence inflation was returning to the target before supporting a rate cut.

The recent speeches influenced investor expectations of a September Fed rate cut. Nevertheless, the markets are still betting on a September rate cut.

According to the CME FedWatch Tool, the chances of the Fed leaving interest rates unchanged in September increased from 35.2% to 40.4% on Monday (May 20).

Views on inflation, the US labor market, and the timing of a Fed interest rate cut need consideration.

Short-term Forecast

Near-term trends for the USD/JPY will hinge on central bank chatter before the prelim Services PMIs (Thurs). Hawkish Fed commentary could further fuel buyer appetite for the USD/JPY. However, weaker US service sector activity may force the Fed into a more dovish interest rate trajectory.

USD/JPY Price Action

Daily Chart

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

A USD/JPY break above the 157 handle would support a move toward the 158 handle. A breakout from 158 could bring the April 29 high of 160.209 into play.

Central bank commentary needs consideration on Tuesday (May 21).

Alternatively, a USD/JPY drop below the 155 handle could give the bears a run at the 50-day EMA. A break below the 50-day EMA could signal a drop toward the 151.685 support level.

The 14-day RSI at 58.30 indicates a USD/JPY return to the April 29 high of 160.209 before entering overbought territory.