USD/JPY bulls are optimistic -- though they need new data to get to the next level.

The pair trimmed session gains as Treasury 2-year yields eased and equities rose following a benign U.S. CPI report. Losses were limited due to a modest steepening of the Treasury yield curve ahead of a 10-year auction and as expectations of a 25 basis point Fed cut on Dec. 18 were solidified.

A hawkish cut by Fed Chair Powell is anticipated next week with inflation remaining well above the Fed’s 2% target and the S&P 500 near an all-time high. This caution about Fed policy, along with lower volatility and a favorable risk tone, should support USD/JPY even as short-term speculators take profits.

USD/JPY held above the key 152 pivot level, dating back to October 2022, and nearby 200-DMA. A close above this level and 151.03 daily cloud top would be considered bullish, though low turnover suggests buyers are not aggressive as it nears the weekly cloud top at 153.16 or prior turbulence above April 29 low of 154.40.

For USD/JPY bears to reengage, the U.S. economic outlook must worsen or Japan’s must improve markedly. Key U.S. data this week includes Thursday’s weekly jobless claims and PPI.

On Friday, Japan's big manufacturers are expected to see a gauge of conditions worsen slightly in the Q4 Tankan report, with the subindex slipping to 12 from 13 in Q3. A surprise increase in this index could revive expectations that the BOJ may hike in December, with current odds at about 25%.

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(Robert Fullem is a Reuters market analyst. The views expressed are his own.)

((robert.fullem@thomsonreuters.com;))