USD/JPY Tests 158.00 as Japan CPI Jumps to 2.9% Y/Y

USD/JPY has surged 0.6% to 157.85, approaching the psychological 158.00 level after Japan's core CPI accelerated to 2.9% year-over-year in May, exceeding forecasts of 2.6%. The inflation overshoot intensifies pressure on the Bank of Japan to consider policy normalization, though officials remain cautious about aggressive tightening. The yen's weakness persists despite the inflation data, with the interest rate differential between the US and Japan continuing to favor dollar strength. WTI crude oil's rise to $81.50 per barrel adds to Japan's import cost pressures, potentially fueling further inflation. Technical indicators show USD/JPY breaking above the 157.50 resistance, with momentum indicators suggesting further upside potential toward 158.50. The BoJ faces a delicate balancing act between supporting economic growth and addressing persistent inflation, with markets increasingly pricing in a potential policy shift by year-end.