USD/JPY continues to gain ground on Fed's interest rate outlook

• USD/JPY shows strength above 156.00 as the Fed maintains a hawkish tone on the outlook for interest rates.
• Raphael Bostic, president of the Atlanta Fed, prefers to wait with current interest rates to trust the progress of disinflation.
• Japanese authorities remain concerned about weak Yen-induced inflation.

The USD/JPY pair extends its winning streak for the fourth session on Tuesday. The asset strengthens as the US dollar appears to stabilize due to support from Federal Reserve (Fed) officials to keep interest rates at their current levels for a longer period.

Market sentiment becomes slightly uncertain, as Fed officials consider that a one-time decline in inflation data in the United States is insufficient to reinforce their confidence that price pressures will return to the desired rate of 2 %. On Monday, Fed Vice Chairman Philip Jefferson stated that it is too early to predict that the recent decline in inflationary pressures will last.

In the American session on Tuesday, the communication from Fed Governor Christopher Waller and Atlanta Fed President Raphael Bostic was clear that they want to see more good data on inflation before supporting normalization of monetary policy. The Fed's Bostic said he will wait longer for a rate cut to be sure inflation doesn't rebound again.

When asked about a concrete timetable for a rate cut, Bostic said he doesn't expect it to be before the fourth quarter of this year. Regarding the inflation outlook, Bostic commented that business owners have experienced a decline in pricing power, but are confident in the economic outlook.

Looking at overnight futures, the S&P 500 is expected to open flat to negative. The US Dollar Index (DXY), which tracks the USD against six major currencies, rises to 104.70. The 10-year US Treasury yield has rebounded to 4.42%.

On the Tokyo front, Japanese Finance Minister Shunichi Suzuki expressed concern about increasing price pressures inspired by the weakness of the Japanese Yen. Suzuki stated: “One of our main objectives is to achieve wage increases that exceed the rise in prices,” adding: “On the other hand, if prices remain high, it will be difficult to achieve this goal even if wages rise.”

This week, the USD/JPY pair will dance to the Minutes of the May meeting of the Federal Open Market Committee (FOMC) and the April Consumer Price Index (CPI) data from Japan, which will be released on Wednesday and Friday.