USD/JPY gains momentum ahead of twin inflation releases from Japan and the United States

• USD/JPY rises for the fifth straight day as the Yen weakens on Japan's fiscal stimulus expectations.
• The Greenback remains firm ahead of US inflation data, with headline CPI seen rising to 3.1% YoY.
• Investors also await Japan's CPI and au Jibun Bank PMI releases on Friday.

The Japanese Yen (JPY) continues to slide against the US Dollar (USD) on Thursday, with USD/JPY extending its advance for the fifth consecutive day. At the time of writing, the pair trades around 152.68, up roughly 0.47% on the day, as investors position cautiously ahead of critical inflation data from both Japan and the United States (US) due on Friday.

The Yen remains under pressure as markets digest reports that the newly appointed Prime Minister Sanae Takaichi is preparing a fresh fiscal stimulus package worth around ¥14 trillion to boost household spending and counter inflation fatigue.

Markets are now turning their attention to Japan's Consumer Price Index (CPI) data, due early Friday, which will be crucial in shaping expectations for the BoJ's monetary policy outlook. Alongside inflation figures, the au Jibun Bank Purchasing Managers Index (PMI) surveys for manufacturing and services will also be released.

According to a Reuters poll of 19 economists, Japan's core CPI, which excludes fresh food but includes energy, is forecast to rise 2.9% year on year, up from 2.7% in August. The broader measure that excludes both food and energy is projected to remain steady at 3.3%

The BoJ is widely expected to keep interest rates steady at next week's monetary policy meeting. According to the BHH MarketView report, Japan's swaps market is pricing in only a 10% probability of a 25-basis-point hike to 0.75% at the October 30 meeting, and around 40% odds of a move by December. Markets fully price in a quarter-point rate increase by Q1 2026.

In the United States (US), market sentiment remains fragile amid ongoing trade tensions with China and the prolonged government shutdown. Despite the uncertain backdrop, the Greenback continues to show resilience as investors brace for the September CPI report due Friday. The US Dollar Index (DXY), which measures the Greenback's value against six major peers, is holding firm near 99.00.

Markets are largely convinced that the Federal Reserve (Fed)will lower interest rates next week, with traders watching inflation data closely for confirmation. Headline CPI is forecast to rise 3.1% YoY, up from 2.9% in August, while the core CPI excluding food and energy is expected to remain steady at 3.1%.