Today marks the second consecutive day of decline for the USD/JPY pair, which also represents the sixth day of negative movement in the past seven days. This is the first time since December 2023 that the pair dropped below the 141.00 level. Meanwhile, the Japanese yen is gaining strong upward momentum. This follows a statement by Bank of Japan board member Junko Nakagawa, who indicated that the central bank will raise interest rates further if economic forecasts align with projections. This aligns with the hawkish outlook of BoJ Governor Kazuo Ueda, reinforcing expectations that Japan's central bank will raise borrowing costs again in 2024.

This contrasts significantly with market expectations, as the Federal Reserve is expected to begin a cycle of policy easing in September. According to the CME FedWatch Tool, markets have fully priced in a 25-basis-point rate cut by the Fed at its upcoming meeting on September 17-18, with only a 30% chance of a 50-basis-point cut. This is contributing to a modest pullback in the U.S. dollar from its monthly highs and reinforces the bearish tone for USD/JPY.

At the same time, investor anxiety ahead of key U.S. consumer inflation data is favoring the yen's status as a safe-haven currency. This, coupled with technical selling below the 142.00 level, is intensifying the bearish pressure on the USD/JPY pair.

However, traders should remain cautious and wait for the release of the U.S. Consumer Price Index (CPI) report before making any bets on further declines. Any further signs of inflation cooling could heighten market expectations for aggressive Fed policy easing, putting pressure on the dollar. Conversely, a stronger-than-expected CPI amid dovish Fed expectations would likely result in limited market reaction. This suggests that the most likely direction for the U.S. dollar and USD/JPY is to the downside. Therefore, any significant recovery attempts may still be viewed as selling opportunities, with the risk of a swift reversal.

From a technical perspective, spot prices are nearing a return to the channel, which should serve as support for short-term traders. In the case of a decisive breakdown, the pair is likely to continue its path toward extending the two-month downtrend. USD/JPY could then drop to the December 2023 swing low around the 140.15 level before eventually testing the psychological 140.00 level.

On the other hand, any further recovery is likely to face stiff resistance around the 142.00 level. However, sustained strength beyond this point could trigger a rally driven by short-covering, pushing USD/JPY toward the Asian session high near 142.45. The momentum could extend toward the 143.00 round level, leading to the weekly high in the 143.70 supply zone. Additional buying would indicate that spot prices have formed a short-term bottom, signaling potential for further gains.