Better-than-expected numbers could affect investor expectations of a September Fed rate cut. A pickup in business confidence could support business investment and job creation. Tighter US labor market conditions may send wages higher and increase disposable income. Higher disposable income could fuel consumer spending and demand-driven inflation.

Nevertheless, investors may hold back from taking positions, with the US CPI Report and FOMC interest rate decision looming. The markets expect the Fed to leave interest rates unchanged on Wednesday. However, hotter-than-expected US inflation numbers could influence the FOMC economic projections.

Short-term Forecast

Near-term trends for the USD/JPY will remain hinged on the US CPI Report, the Fed, and the Bank of Japan. Hawkish FOMC economic projections could tilt monetary policy divergence toward the US dollar. However, a post-Fed USD/JPY rally could fuel speculation about a BoJ rate hike to bolster the Japanese Yen. It could be a choppy second half of the week for the USD/JPY pair.

USD/JPY Price Action

Daily Chart

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

A USD/JPY break above 157.5 could signal a return to the 158 level. If the USD/JPY returns to the 158 handle, the bulls could target the April 29 high of 160.209.

Japan machine tool orders, Bank of Japan chatter, and US economic indicators 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 would bring the 151.685 support level into view.

The 14-day RSI at 56.44 indicates a USD/JPY climb to the April 29 high of 160.209 before entering overbought territory.