Ella 
In Asia on Monday, USD/JPY strengthened to around 155.85. The Fed’s hawkish stance has provided some support to USD/JPY in recent sessions. Investors will take more clues from this week’s U.S. Consumer Price Index (CPI), Producer Price Index (PPI) and retail sales to find new momentum. In addition, Fed officials Jefferson and Mester will speak later on Monday.
Earlier on Monday, the Bank of Japan (BoJ) reduced the amount of Japanese government bonds (JGB) it purchased in its latest operation in the 5-10-year window to 425 billion yen from 475 billion yen in the previous operation. Ruling party heavyweight Katsunobu Kato said the conditions for the Bank of Japan to normalize monetary policy are in place. However, the Bank of Japan must monitor economic conditions and coordinate carefully with the government to determine when to raise interest rates.
Federal Reserve officials signaled caution on monetary policy last week. Financial markets have reduced the probability of a rate cut in June to 5% from 10% at the beginning of last week, while the probability of a rate cut in September has also dropped to 75% from nearly 90% at the beginning of last week. The University of Michigan’s preliminary consumer confidence index fell to 67.4 in May from 77.2 in April, below expectations of 76.0. Elsewhere, one-year inflation expectations climbed to 3.5% and five-year inflation expectations rose to 3.1%, the highest levels since November 2023. The wide interest rate differential between Japan and the United States continues to weaken the Japanese yen (JPY) and boost USD/JPY.
