While the market is fully focused on the release of US inflation data and the Federal Reserve's final monetary policy decision next week, the Japanese yen is steadily strengthening in the Forex market. Against this backdrop, the question now arises: will the yen continue to strengthen?

Today, Wednesday, the market's attention remains focused on the outcome of the US central bank's monetary policy meeting next week. In this regard, debate is underway in the market over whether the Fed will raise interest rates or keep them at their current level. In fact, there has been extensive debate on this issue, with many different opinions put forward. Some believe that interest rates really need to be raised, based on the principle of second-round inflation and other considerations. Others, on the contrary, argue that it is still too early to do so, pointing out that oil prices are still below $100 and, therefore, it is too early to draw any conclusions.

In general, the origin of inflation in the United States is not driven by rising American prosperity. On the contrary, higher prices for energy resources, gasoline, and diesel fuel mean that Americans spend more money specifically on these products in order to drive their cars, because the United States is a car-dependent country. This leaves them with less money to spend on food and entertainment. Therefore, this inflation spike is not broad-based, and an interest-rate hike is unlikely to be expected.

Today, however, I want to focus on the Forex market and what is happening there, specifically the probability of what the Bank of Japan may do in the foreseeable future.

Until quite recently, the yen was under severe pressure and reached a 30-year low against the US dollar. However, after rumors emerged that the local central bank could raise its key interest rate this month and do so once again before the end of the current year, bringing the cumulative increase in borrowing costs to half a percentage point, the pair reversed and began to decline sharply. The yen is also being supported by a decline in the yield on Japanese 10-year government bonds, which recently fell from slightly above 3% to 2.88%. This represents a significant decline for the bond market. As for the yen itself, it is steadily strengthening against the US currency.

What can be expected from the USD/JPY currency pair?

The entire fundamental backdrop from Japan is supporting the national currency. How might the pair behave as US economic data, particularly inflation data, are released tomorrow and the day after tomorrow, especially on Friday? And what will its movement look like following the US regulator's meeting on Wednesday, September 16?

Let me remind you that the Fed meeting takes place over two days, beginning on Tuesday, with its decision announced on Wednesday. So, suppose the Federal Reserve leaves interest rates unchanged. In that case, the pair's decline should be expected to continue. At the same time, if tomorrow's data, and especially Friday's US consumer inflation data, show a stronger-than-expected increase, above the consensus forecast and above the levels currently expected, the dollar could receive support, in which case the yen's strengthening would at least slow.

At the same time, if the Fed raises its key interest rate following the two-day meeting, and K. Warsh gives in to the bullish sentiment in the markets, then a continued decline in USD/JPY would be unlikely. Against the euro, Australian dollar, and British pound, however, further yen strengthening in the Forex market should be expected.

In general, we will begin to see how events unfold tomorrow, on Thursday. On Friday, the market will react to the inflation report, while the climax may come against the backdrop of the Fed's final interest-rate decision on Wednesday.

Daily Forecast:

EUR/JPY

The pair is consolidating above 178.00 while awaiting the US inflation report. The pair could fall to 176.20 following the ECB's decision to raise interest rates, which has already been priced into the market. The 177.78 level could serve as a selling level. A stop-loss could be placed at 179.48.

AUD/JPY

The pair is trading below the 111.00 resistance level and has resumed its decline amid expectations that the Bank of Japan may aggressively raise interest rates this year. The pair could fall to 109.54. The 110.58 level could serve as a selling level. A stop-loss could be placed at 111.55.