Japanese Yen remains under pressure against US Dollar, US CPI data eyed

The Japanese Yen (JPY) continues to struggle against the US Dollar (USD) during Wednesday's European trading session, with the USD/JPY pair reaching near 159.36. Analysts from ING predict heightened uncertainty surrounding the US Consumer Price Index (CPI) data release at 12:30 GMT. ING's analysts anticipate modest inflation numbers, with a 0.1% month-on-month increase for headline inflation and 0.2% for core inflation.

If these projections materialize, year-on-year inflation rates would drop to 3.4% and 2.5%, respectively, nearing the Federal Reserve's 2% target. The US Dollar Index (DXY) remains slightly higher at 99.86, having been range-bound below 100.00 this week. ING suggests that soft gasoline prices, rental deflation, and low wages could be factors contributing to the Dollar's weakened position.

The CME FedWatch tool indicates that traders are uncertain about an interest rate hike during the September meeting. Meanwhile, the Japanese Yen has underperformed for a week despite expectations of US-Japan intervention and Bank of Japan (BoJ) rate hikes. DBS Group Research notes that the July 30-31 BoJ meeting communications were more hawkish than the decision suggested, implying a potential earlier tightening.

However, they caution that an early September rate hike would require careful management due to market volatility risks surrounding the September 17-18 meeting. The Bank of Japan is expected to raise its policy rate to 1.25% in October, with a nearly 50% probability of an earlier hike at the September meeting.