• The Japanese Yen remains under pressure against the US Dollar after stronger-than-expected US inflation data.
• Markets are now pricing in higher odds of at least one Federal Reserve rate hike this year.
• Investors are also watching the meeting between Donald Trump and Xi Jinping this week.

USD/JPY trades around 157.80 on Wednesday at the time of writing, up 0.13% on the day, as the US Dollar (USD) continues to benefit from renewed hawkish expectations surrounding the Federal Reserve’s (Fed) monetary policy outlook.

The US Dollar remains close to its recent highs after Tuesday’s stronger-than-expected United States (US) Consumer Price Index (CPI) release. Headline inflation in the US rose 3.8% YoY in April, above market expectations of 3.7% and the previous reading of 3.3%, reinforcing expectations that the Fed could keep interest rates higher for longer.

Data released on Wednesday also confirmed persistent inflationary pressures in the United States. The Producer Price Index (PPI) surged 6% YoY in April, above market expectations of 4.9%, while core PPI reached 5.2% YoY. Rising energy prices linked to geopolitical tensions in the Middle East continue to fuel global inflation concerns.

According to the CME FedWatch tool, the chance of at least one Fed rate hike by the end of the year increased sharply after the US inflation data. This shift supports US Treasury yields and the Greenback at the expense of the Japanese Yen (JPY).

The next major catalyst for markets will now be the meeting between US President Donald Trump and Chinese President Xi Jinping in Beijing this week. Investors will closely monitor any comments regarding trade and geopolitical tensions, while developments surrounding Iran and the Strait of Hormuz continue to support risk aversion.

On the Japanese side, the JPY is limiting part of its losses thanks to expectations of further monetary tightening by the Bank of Japan (BoJ). The Summary of Opinions from the central bank’s April meeting showed that several policymakers are considering additional rate hikes as early as the next meetings, mainly due to inflation risks linked to rising Oil prices.

The Organisation for Economic Co-operation and Development (OECD) also stated that the Bank of Japan could raise its policy rate to 2% by the end of 2027, while urging the Japanese government to strengthen fiscal discipline.