USD/JPY sits near weekly high, above 147.00 as traders look to US CPI for fresh impetus

• USD/JPY trades with a positive bias for the second straight day, albeit lacks any follow-through.
• Expectations that BoJ will maintain the status quo weigh on the JPY and lend support to the pair.
• Subdued USD price action keeps a lid on any further gains ahead of the crucial US CPI report.

The USD/JPY pair attracts some buying for the second successive day and trades near the top end of its weekly range, around the 147.20-147.25 region during the Asian session on Wednesday.

Despite Bank of Japan (BoJ) Governor Kazuo Ueda's hawkish remarks over the weekend, market participants seem convinced that the Japanese central bank will stick to its ultra-easy monetary policy settings. This, in turn, is seen undermining the Japanese Yen (JPY) and acting as a tailwind for the USD/JPY pair. In an interview with Yomiuri newspaper published on Saturday, Ueda said that ending negative interest rates is among the options available if the BoJ becomes confident that prices and wages will keep going up sustainably. Japan’s ruling Liberal Democratic Party’s (LDP) Upper House secretary-general, Hiroshige Seko, however, signalled his preference for an ultra-loose monetary policy. Seko added that the BoJ Gov Ueda had said that exit from the easy policy would be after achieving the 2% inflation target.

Furthermore, data released this Wednesday showed that Japan's annual wholesale inflation slowed in August for the eighth straight month. In fact, the Japanese Producer Price Index (PPI) decelerated in line with market expectations, to the 3.2% YoY rate during the reported month, from a downwardly revised 3.4% rise registered in July. The data ensures that the BoJ will maintain the status quo until next summer, which continues to lend some support to the USD/JPY pair. The upside, however, remains capped in the wake of subdued US Dollar (USD) price action ahead of the crucial US consumer inflation figures, which will influence the Federal Reserve's (Fed) future rate hike.

Any signs of sticky inflation will reaffirm market bets for one more 25 bps lift-off by the end of this year and trigger a fresh leg up for the USD. The market reaction to a softer US CPI print, however, is more likely to be limited on the back of the divergent Fed-BoJ monetary policy stance. This, in turn, suggests that the path of least resistance for the USD/JPY pair is to the upside and any corrective decline might still be seen as a buying opportunity.

Technical levels to watch