Views on inflation, the economic outlook, and the timing for a Fed interest rate cut could move the dial.

In recent speeches, FOMC members Raphael Bostic, Loretta Mester, and Michelle Bowman signaled the need for a higher-for-longer Fed rate path to bring inflation to the 2% target. Moreover, Michelle Bowman warned about an interest rate hike if consumer prices trended higher.

The April US CPI Report and retail sales figures raised investor bets on a September Fed rate cut. However, increasing concerns about the tight US labor market and sticky inflation could impact investor expectations of a September Fed rate cut.

According to the CME FedWatch Tool, the chances of the Fed leaving interest rates unchanged in September declined from 38.8% to 35.2% in the week ending May 17.

Short-term Forecast

Near-term trends for the USD/JPY will hinge on economic data from Japan and central bank commentary. Hawkish FOMC member chatter would drive buyer demand for the US dollar, However, calls for a June BoJ rate hike may impact the USD/JPY more.

USD/JPY Price Action

Daily Chart

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

A USD/JPY return to the 156 handle could signal a move to the 158 handle. A break above 158 may give the bulls a run at the April 29 high of 160.209.

On Monday, the Tertiary Industry Index and central bank commentary need consideration.

Alternatively, a USD/JPY fall through the 50-day EMA would bring the 151.685 support level into play.

The 14-day RSI at 55.57 suggests a USD/JPY return to the April 29 high of 160.209 before entering overbought territory.