USD/JPY advances to 156.50 ahead of US Inflation and Japan’s Q1 GDP

• USD/JPY rises to 156.50 with eyes on crucial US inflation readings.
• Investors expect that the fed will start lowering interest rates from September.
• Japan’s Q1 GDP will indicate the economic strength.

The USD/JPY pair extends its upside to 156.50 in Tuesday’s European session. The asset strengthens as investors turn cautious ahead of the release of the United States Consumer Price Index (CPI) data for April and the Japan’s preliminary Q1 Gross Domestic Product (GDP) data.

The US inflation data will force traders to reassess market expectations for Federal Reserve’s (Fed) rate cuts, which financial markets anticipate that the central bank will start from the September meeting.

Annual headline CPI is forecasted to have softened to 3.4% from 3.5% in March. In the same period, the core inflation that strips off volatile food and energy prices is anticipated to decelerate to 3.6% from the prior reading of 3.8%. Economists expect that monthly headline and core CPI have grown at a slower pace of 0.3% from the prior reading of 0.4%.

Before the release of the consumer inflation data, investors will focus on the US Producer Price Index (PPI) data for April that will be published at 12:30 GMT. The producer inflation will indicate the chance in prices of goods and services at their premises.

Meanwhile, the Japanese Yen remains on the backfoot as investors worry about the Bank of Japan’s (BoJ) policy-tightening scope in the upcoming meetings. Going forward, investors will focus on the Q1 GDP data, which will be published on Thursday.

Economists expect that the Japanese economy contracted by 0.4% after expanding by 0.1% in the last quarter of 2023. On an annualized basis, the Japanese economy is estimated to have contracted significantly by 1.5%. Weak GDP growth will raise concerns over BoJ’s plan to continue the policy-tightening cycle.