• USD/JPY is rising on the back of a strengthening US Dollar as traders grow more optimistic about the US economic outlook. 
• US employment data out this week will be key in their evaluations and will probably impact the pair. 
• The Japanese Yen remains supported by a run of positive data and expectations the BoJ will soon raise interest rates. 

USD/JPY is trading up a half a percent in the 146.90s on Monday as the US Dollar (USD) continues its recovery from the late August lows, whilst the Japanese Yen (JPY) treads water. 

The US Dollar’s bounce gained some impetus after the release of July’s US Personal Consumption Expenditures (PCE) Price Index on Friday. The PCE is the Federal Reserve’s (Fed) preferred inflation gauge. The data showed that US inflation remained unchanged compared to the previous month and helped reassure investors that the US economy was probably not deccelerating as quickly as some had feared. In a “soft-landing” scenario the US Dollar is likely to hold its strength better than if the economy crashes. 

USD/JPY may see its gains capped, however, as the JPY finds support from a run of strong data out of Japan. Capital expenditure by Japanese companies expanded by 7.4% in the second quarter, marking the thirteenth consecutive quarter of growth, data showed on Sunday. Jibun Manufacturing PMI, meanwhile, was revised up to 49.8 from 49.5 in August, moving closer to 50 above which it would mark expansion.

Data out last week further increased the chances of the Bank of Japan (BoJ) raising interest rates in the coming months, a move that would support the Japanese Yen by increasing foreign capital inflows. Annual flash Tokyo CPI ex fresh food for July came out at 2.4% compared to 2.2% in the previous month and beating expectations of 2.2%, according to data from the Statistics Bureau of Japan on Thursday. The Tokyo data suggested that Japan-wide inflation could show a similar rise.