USD/JPY recovers some pips from 142.00, looks to US CPI for fresh impetus

• USD/JPY is down for the second day in a row and is slipping back closer to a one-month low.
• Divergent BoJ-Fed policy expectations are proving to be a key factor exerting some pressure.
• Traders appear reluctant to place aggressive bets ahead of the release of the key US CPI report.

USD/JPY remains under some selling pressure for the second day in a row on Wednesday, although it is finding some support near the 142.00 level and recovering a few pips in the last hour. Spot prices are currently trading around the 142.30 region, within striking distance of the one-month low hit last week.

This decline is sponsored by the divergent monetary policies between the Bank of Japan (BoJ) and the Federal Reserve (Fed), which continue to cause the withdrawal of carry trades and drive flows into the Japanese Yen (JPY). In fact, BoJ Governor Kazuo Ueda reaffirmed a commitment to continue raising interest rates if the Japanese economy meets the central bank’s economic forecasts through fiscal 2025.

In contrast, markets have fully priced in a 25 basis point (bps) interest rate cut by the Fed at its upcoming September 17-18 policy meeting. This, in turn, does not help the US dollar (USD) capitalize on its gains over the past three days. Apart from this, cautious market sentiment is seen benefiting the relatively safe status of the JPY and exerting some downward pressure on the USD/JPY pair.

The fundamental background mentioned above favors bear traders and suggests that the path of least resistance for spot prices is in decline. Investors, however, may prefer to wait for the release of the crucial US Consumer Price Index (CPI) report for clues on the Fed’s rate-cutting trajectory. This will play a key role in influencing USD price dynamics in the short term and provide a new directional boost to the USD/JPY pair.