USD/JPY gathers strength to print fresh five-month high above 138.00 ahead of Japan’s Inflation

• USD/JPY is looking to refresh its five-month high above 138.00 as the BoJ would continue its ultra-dovish policy.
• The overall market sentiment has turned positive as a raise in the US borrowing cap seems promising.
• Japan’s inflation is expected to soften further due to declining oil prices.

The USD/JPY pair is gathering strength for printing a fresh five-month high above 138.00 in the Asian session. The asset has got immense strength as the Bank of Japan (BoJ) is expected to continue keeping its monetary policy loose enough to sustain inflationary pressures at elevated levels.

S&P500 futures have generated nominal losses in the Asian session. US equities had a ball on Wednesday as investors are confident that the White House and Republican leaders would agree to a deal of raising the US debt ceiling. This has faded fears of catastrophic effects of a default by the US Treasury in augmenting its obligated payments.

The overall market sentiment has turned positive amid a promising deal for raising the US borrowing cap. However, the approval is coming by compromising spending initiatives for the budget.

The US Dollar Index (DXY) has rebounded to near 102.90, however, the downside seems favored as the Federal Reserve (Fed) is expected to pause its rate-hiking spree.

Meanwhile, the Japanese Yen is expected to remain on the tenterhooks ahead of Japan’s inflation data, which is scheduled for Friday. Japan’s National Consumer Price Index (CPI) data (April) will be keenly watched. Headline CPI is seen softening to 2.5% from the former release of 3.2%. Also, the core inflation is expected to decelerate to 3.4% against the prior figure of 3.8%.

Softening of Japan’s inflation data is going to force the Bank of Japan to continue its ultra-dovish interest rate policy. BoJ Governor Kazuo Ueda is committed to keeping inflation steady above 2%, which needs expansionary monetary policy.