The USD/JPY pair touches a one-and-a-half-week high during the Asian session on Wednesday, with the Japanese yen sliding to a two-week low as the US dollar holds gains ahead of the US CPI report. The wide rate gap between Japan and other major economies keeps the carry trade active, undermining the yen, while Prime Minister Sanae Takaichi's aggressive stimulus and tax cuts raise concerns about Japan's worsening fiscal condition. The Reuters Tankan survey showed manufacturers' sentiment climbed to 18 in August, the highest since March 2026, and non-manufacturers rose to 28, but this did little to support the yen. Traders are pricing a 66% chance of a Bank of Japan rate hike in September, yet the dollar benefits from expectations that higher oil prices may push the Federal Reserve to adopt a more hawkish stance, with over a 75% chance of at least one rate increase by end-2026. The upcoming US CPI and PPI reports, along with Middle East developments, will influence the pair's direction, but the recent recovery from the 155.25-155.20 region suggests further upside potential.
