On Thursday, USD/JPY shows a modest recovery, trading just above 153.50, while bears remain cautious ahead of US inflation prints. Spot quotes, however, remain close to the seven-month low recorded earlier this week as markets aggressively reassess the Bank of Japan's turn toward a tighter stance, which continues to support the yen.

At this point, market participants appear to have fully priced in a 25?bp BOJ rate hike at the September 17–18 meeting and a high probability of a follow-up move in December. Expectations strengthened markedly after influential BOJ hawks such as Hajime Takata and Naoki Tamura called for faster, more flexible interest rate increases to combat rising inflation. Revised GDP prints and clear wage growth have further bolstered the central bank's normalization path, supporting the yen and capping USD/JPY upside.

On the other hand, the US dollar has recovered slightly from a near-three-week low hit on Wednesday as sellers take a wait-and-see stance ahead of today's US Producer Price Index (PPI) release. Friday's Consumer Price Index (CPI) report will be closely analyzed by the market for additional clues on the Federal Reserve's next moves.

At the same time, rising odds of a September Fed hike, driven by inflation risks from higher energy prices and escalating US–Iran tensions, support the dollar and the USD/JPY pair. Against the backdrop of the Middle East crisis, Iran reported attacks on 10 vessels near the Strait of Hormuz in retaliation for reports that the US sank five Iranian oil tankers in the Gulf of Oman and near Kharg Island.

Additionally, Iran launched a missile strike against US forces stationed at Al-Azraq base in Jordan. US President Donald Trump added that the conflict with Iran would end after the November midterm elections. This factor supports a higher geopolitical risk premium and may deter dollar bulls from opening aggressive positions, which in turn could limit USD/JPY upside.

From a technical standpoint, USD/JPY remains clearly under bearish pressure, trading well below the 200-day SMA. Consolidation below the round level of 153.00 could become a fresh sell signal and open the way to further declines as spot prices search for a more reliable support base. Momentum oscillators are negative, confirming the bears' advantage. However, the relative strength index sits in oversold territory, indicating a correction.