USD/JPY faces pressure as BoJ rate hike prospects strengthen

USD/JPY has retreated from its weekly highs following reports suggesting the Bank of Japan remains on track for potential rate hikes, despite political uncertainty after Prime Minister's resignation. The pair initially gapped higher on Monday but has since reversed gains as traders digest the implications of BoJ's hawkish stance. The political transition in Japan adds complexity to the yen's outlook, though market participants appear more focused on the central bank's policy trajectory. With US inflation data looming, the pair faces a dual catalyst situation where both Federal Reserve and BoJ policies could drive significant volatility. Technical indicators suggest the pair has broken below key support levels established earlier in the week. The combination of potential BoJ tightening and questions about US economic strength following the jobs revision creates a bearish environment for USD/JPY, with further downside possible if upcoming US inflation data disappoints.