USD/JPY Supported by Hawkish Fed Stance and Positive US Data

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The USD/JPY pair is facing headwinds due to the USD pulling back from its highest level since April, which is acting as a key factor in the current market. However, the downside for the USD appears to be cushioned, at least for now, as investors speculate that the Federal Reserve (Fed) may maintain its hawkish stance despite rising US long-term inflation expectations.

The University of Michigan's preliminary May reading released on Friday indicated that consumers expect prices to rise at an annual rate of 3.2%, the highest level since 2011. This could result in the Fed keeping interest rates higher for longer, which would continue to support US Treasury bond yields and bolster the Greenback.

Meanwhile, the Japanese Yen (JPY) may remain under pressure due to the Bank of Japan's (BoJ) dovish outlook. BoJ Governor Kazuo Ueda stated last week that it was too early to discuss specific plans for an exit from the massive stimulus program. The positive tone around US equity futures may also lend some support to the USD/JPY pair.

Looking ahead, traders will focus on the US economic docket, featuring the release of the Empire State Manufacturing Index, and a scheduled speech by Minneapolis Fed President Neel Kashkari. These events are expected to drive USD demand and provide impetus to the USD/JPY pair.
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