The Japanese Yen (JPY) reverses Asian session losses against its American counterpart, dragging the USD/JPY pair back below the 150.00 psychological mark in the last hour. Japan's Services Producer Price Index (PPI) released earlier this Tuesday underscores the view that rising wages are persuading firms to pass on higher labour costs through price hikes. This comes on top of Japan's strong consumer inflation figures and reaffirms bets that the Bank of Japan (BoJ) will hike interest rates further, which, in turn, continues to underpin the JPY.

Meanwhile, BoJ Governor Kazuo Ueda's remarks last week, saying that the central bank stands ready to increase government bond buying if long-term interest rates rise sharply, keep the Japanese government bond (JGB) yields depressed below a multi-year top. This might hold back the JPY bulls from placing aggressive bets and help limit the downside for the USD/JPY pair amid a modest US Dollar (USD) bounce from over a two-month low. Nevertheless, the fundamental backdrop suggests that the path of least resistance for the JPY is to the upside.
Japanese Yen continues to draw support from rising bets for more BoJ rate hikes
Bank of Japan Governor Kazuo Ueda issued a mild warning last Friday and said that the central bank could increase bond buying if abnormal market moves trigger a sharp rise in yields.
Ueda's remarks dragged the yield on the benchmark Japanese government bond away from its highest level since November 2009 and weighed on the Japanese Yen earlier this Tursday.
Some market players, however, expect that the 10-year JGB could rise to 1.5% in the coming weeks, with growing acceptance that the BoJ will hike rates further amid broadening inflation in Japan.
The bets were lifted by Japan's strong consumer inflation figures released last week and the Services Producer Price Index (PPI), which rose 3.1% YoY in January and signaled persistent cost pressures.
The recent downbeat US economic data raised doubts about consumer health and the growth outlook amid worries that US President Donald Trump's tariff plans could undermine domestic demand.
The S&P Global's flash US PMIs pointed to a weaker expansion in overall business activity and the University of Michigan's US Consumer Sentiment Index dropped to a 15-month low in February.
Federal Reserve officials, however, remain wary of future rate cuts. In fact, Chicago Fed President Austan Goolsbee said that the central bank needs more clarity on Trump's policies before going back to cut rates.
This assists the US Dollar in building on the previous day's bounce from its lowest level since December 10 and continues to push the USD/JPY pair higher for the second successive day on Tuesday.
Traders now look to the US macro data – Conference Board's Consumer Confidence Index and Richmond Manufacturing Index. This, along with Fed speaks, might influence the USD.
The focus, however, will remain glued to the release of the US Personal Consumption Expenditure (PCE) Price Index on Friday, which could provide cues about the Fed's rate-cut path.

Source: Fxstreet