Ella 
USD/JPY is higher for the second day in a row, but lacks follow-through.
Expectations that the Bank of Japan will remain on hold weighed on the Japanese yen and provided support for USD/JPY.
USD/JPY’s further gains were restrained by a subdued greenback ahead of key US inflation releases.
USD/JPY attracted some buying for the second day in a row, with Asia trading near the upper edge of its weekly range (around 147.20-147.25) on Wednesday.
Despite hawkish comments from Bank of Japan Governor Kazuo Ueda over the weekend, market participants appear confident that the Bank of Japan will stick to its ultra-loose monetary policy settings. This in turn weighs on the Japanese Yen (JPY), creating a “tailwind” for the USD/JPY pair. Bank of Japan Governor Kazuo Ueda said in an interview with the Yomiuri Shimbun on Saturday that if the Bank of Japan is convinced that prices and wages will continue to rise, ending negative interest rates is also one of the options. However, Hiroshige Seko, secretary-general of the upper house of Japan’s ruling Liberal Democratic Party (LDP), said he is inclined to adopt ultra-loose monetary policy. Hiroshige Nagase added that Bank of Japan Governor Kazuo Ueda has said that it will exit easing policy after achieving the 2% inflation target.
Separately, data released on Wednesday showed that Japan’s annual wholesale inflation rate slowed for the eighth consecutive month in August. In fact, Japan’s producer price index (PPI) fell in line with market expectations, falling to 3.2% from a downwardly revised 3.4% in July. The data will confirm that the Bank of Japan will maintain the status quo until next summer, which continues to provide some support for the USD/JPY pair. However, the dollar price trend was subdued and upside remained limited ahead of the release of key U.S. consumer inflation data, which will affect the Federal Reserve’s plans to raise interest rates in the future.
Any signs of U.S. inflation continuing to rise will once again confirm market expectations that the Federal Reserve will raise interest rates by 25 basis points before the end of this year, triggering a new round of gains in the dollar. However, the market reaction may be limited if U.S. inflation weakens due to the different monetary policy stances of the Federal Reserve and the Bank of Japan. This in turn suggests that the path of least resistance for the USD/JPY pair is to the upside and any consolidation lower could still be viewed as a long opportunity.
