USD/JPY soars towards 136.50 as DXY reclaims 107.00, US Inflation in focus

• USD/JPY is marching towards 136.50 as the DXY has strengthened on higher consensus for US Inflation.
• The plain-vanilla US CPI is seen higher at 8.7% while the core CPI may slip by 5.7%.
• Japan’s Industrial Production data is expected to remain flat.

The USD/JPY pair is heading towards the critical resistance of 136.50 firmly as the US dollar index (DXY) has overstepped the crucial hurdle of 107.00 in early Tokyo. On a broader note, the asset has remained sideways from the past week in a 135.22-136.56 range. This week, a power-pack performance is expected as the US Consumer Price Index (CPI) will release on Wednesday.

A preliminary estimate for the US CPI is 8.7%, mildly higher than the prior release of 8.6% on an annual basis. While the core CPI may slip lower to 5.7% vs. 6% recorded earlier.  Lower expectations from the core CPI dictate that the oil and food prices are trimming their impact, however, the commodity and other products are still dampening the market mood.

Well, the runaway inflation rate is highly required to be fixed by higher paychecks for the households. And, in that context, the US economy is failing to gear up Average Hourly Earnings that could mitigate the vulnerable impact of higher price pressures.

Meanwhile, the US dollar index (DXY) is displaying a firmer upside move in the Tokyo session. The DXY has established above 107.00 as a higher inflation rate in the US economy will support the interest rate decision of a bumper rate hike by the Federal Reserve (Fed).

On the Tokyo front, investors are awaiting the release of the Industrial Production data, which is due on Thursday.  The economic data is expected to land at -2.8%, similar to its prior print on an annual basis. However, the quarterly data may remain stable at -7.2%. Apart from that, the death of Japan’s ex-Prime Minister Shinzo Abe has soured the market mood in Japan.