The USD/JPY pair weakened during Friday's Asian session, falling back to around 154. The dollar had previously found support and rebounded after the release of US PPI data, but its upside potential against the yen remained limited by the yen's strength. The market is currently cautious, with investors unwilling to establish large directional positions ahead of the US August CPI release, thus keeping the USD/JPY near a key technical level. The US August PPI has become a significant catalyst for the recent dollar rebound. Data from the US Bureau of Labor Statistics showed that the August PPI rose 5.4% year-on-year, a significant acceleration from the revised 4.8% in July and exceeding market expectations. The month-on-month increase was 0.4%, in line with market expectations. The data indicates that price pressures on the US production side remain somewhat persistent, thus increasing market expectations that the Federal Reserve will maintain a tight policy stance in the near term. Currently, market expectations for a Fed rate hike next week have risen to approximately 70%, giving the dollar a certain interest rate advantage. Meanwhile, the US 10-year Treasury yield is close to 5%, and the dollar index remains around 99, indicating an overall strong dollar environment. However, the US PPI alone is not enough to determine the Fed's policy path. The market is currently more focused on the US August CPI, as consumer inflation data will further verify whether price pressures on the production side are being transmitted to end-user prices. If the CPI is higher than expected, the market may further increase expectations for a Fed rate hike, potentially giving the dollar new upward momentum and pushing USD/JPY to retest the area above 154. Conversely, if the CPI is significantly lower than expected, bets on further tightening by the Federal Reserve may cool, and US Treasury yields and the US dollar may decline. In this scenario, the relative advantage of the yen may widen again, and USD/JPY will face greater downward pressure. Regarding the yen, the market is currently clearly repricing the Bank of Japan's (BOJ) policy path. The BOJ is expected to raise interest rates by 25 basis points to 1.25% at its policy meeting on September 17-18, while the market is also betting on further rate hikes later this year. The hawkish signals recently released by the BOJ are a significant factor driving the yen's strength. The latest Japanese inflation data further reinforces this policy expectation. Japan's corporate goods price index rose 7.6% year-on-year in August, slightly lower than the revised 7.7% in July, but still at a relatively high level in recent years. Import prices are also affected by energy costs and yen exchange rate fluctuations, indicating that domestic price pressures in Japan have not subsided significantly. The continued high inflation in Japan provides a stronger fundamental basis for the BOJ to continue its policy normalization efforts and also limits the ability of yen shorts to rebuild large-scale positions. If the Bank of Japan confirms an interest rate hike at its September meeting and maintains a hawkish stance on subsequent policy, the upside potential for USD/JPY may be further limited. Furthermore, rising energy prices in the Middle East are impacting both the US and Japan. International oil prices have remained high recently, exacerbating global energy supply risks. On one hand, rising US energy costs could further push up US inflation, reinforcing expectations of a tighter stance from the Federal Reserve; on the other hand, Japan is highly dependent on energy imports, and rising oil prices will increase Japan's import costs, thus intensifying domestic inflationary pressures. Therefore, energy prices have a complex two-way impact on USD/JPY. If oil prices continue to rise and first strengthen expectations of US inflation and a Fed rate hike, the dollar may find support; however, if the market focuses more on Japanese import inflation and the possibility of the Bank of Japan accelerating rate hikes, the yen may also be boosted. Currently, the core contradiction in USD/JPY has gradually shifted from simply the USD/JPY interest rate differential to a rebalancing of policy expectations between the Federal Reserve and the Bank of Japan. After USD/JPY previously fell below 155, the market's technical outlook weakened significantly, giving yen bulls greater initiative. UOB recently believes that as long as USD/JPY fails to break through the strong resistance around 155.20, the medium-term downward pressure will remain, with the area around 152.08 being a key support level to watch. Therefore, it is crucial to closely monitor US CPI, US Treasury yields, the US dollar index, and the Bank of Japan's policy expectations. If US CPI shows sticky inflation again, the US dollar may rebound in the short term, easing the downward pressure on USD/JPY; however, if US inflation cools while the Bank of Japan continues to signal interest rate hikes, the yen may strengthen further. From a daily chart perspective, USD/JPY remains bearish in the short term. After breaking below the important support area around 155.20, the overall structure has clearly weakened, and the current rebound is still being suppressed by the 38.2% Fibonacci retracement level around 154.95. If the price regains its footing above 154.95 and further breaks through the 155.20-155.30 area, the short-term downward structure may be significantly alleviated, with further resistance at the 23.6% Fibonacci retracement level around 158.49. The first support level to watch is around 154.95. A break below this level could lead to a further test of the 50% Fibonacci retracement level around 152.08. If 152.08 is also breached, the next support level to watch is the 61.8% retracement level around 149.21. Looking at the 4-hour chart, USD/JPY has entered a consolidation phase after its previous rapid decline, with the 153.00 to 154.30 range forming the main recent trading range. If the US CPI is higher than expected and pushes the dollar and US Treasury yields higher, a break above 154.30 could lead to further testing of the 154.95 and 155.20 areas. However, if it fails to break above 154.30 and falls below 153.00 again, downward pressure could intensify, potentially leading to a test of the 152.08 level. While short-term indicators such as MACD were previously bearish, the recent decline suggests a short-term technical correction is needed. Therefore, any rebound before the US CPI release should not be interpreted as a trend reversal. In summary, USD/JPY is currently at a critical juncture where policy expectations from both the Federal Reserve and the Bank of Japan are shifting simultaneously. Rising US PPI and expectations of a Fed rate hike are supporting the dollar, but persistently high Japanese inflation and rising expectations of a September rate hike by the Bank of Japan are limiting the upside potential for USD/JPY. The true short-term direction still depends on changes in US CPI and US Treasury yields. Technically, 154.95 to 155.30 is a key area that dollar bulls need to break through, while 152.08 is a key support level that yen bulls need to watch in the next phase.