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USD/JPY declines towards 129.00 as USD Index looks to crack further ahead of US GDP

  • USD/JPY is expected to scale down to 129.00 amid an upbeat risk profile.
  • Vanished chances of a 50 bps interest rate hike by the Fed have heavily weighed on US yields.
  • BoJ’s Summary of Opinions conveys that the price index is accelerating for both goods and services.

The USD/JPY pair is hovering near the crucial support of 129.26 in the early Asian session. The asset is expected to surrender the aforementioned support and will decline towards the 129.00 cushion amid volatility in the US Dollar Index (DXY). The USD Index is auctioning around a seven-month low at 101.10 and might slip further amid the risk-on market mood.

A recovery in the S&P500 futures after investors shrugged off uncertainty over the ongoing earnings season improved the risk appetite of the market participants. Meanwhile, economists at UBS have doubts that the rally in the 500-US stock basket will prove durable. They further added that “We don’t see much scope for markets to rally in the near term, especially given our outlook for continued pressure on corporate profit growth.”

Vanished chances of a 50 basis point (bps) interest rate hike by the Federal Reserve (Fed) in its February monetary policy meeting has heavily weighed on US Treasury yields. The return generated by 10-year US Treasury bonds has dropped sharply to near 3.44%. Also, the demand for US government bonds is accelerating ahead of the release of the United States Gross Domestic Product (GDP) data.

Investors are expecting shrinkage in the scale of economic activities to 2.6% vs. the former release of 3.2% in the third quarter of CY2022. This could be the consequence of extreme policy tightening by the Fed, which restricted firms from borrowing.

On the Japanese Yen front, Bank of Japan (BoJ) Governor Haruhiko Kuroda has confirmed that the central bank “will resolutely keep the monetary environment easy.” Kuroda added that “the BoJ aims to regain market functionality by tweaking yield curve control operations while maintaining an easy monetary environment.

Meanwhile, the release of the BoJ Summary of Opinions might bring an action to USD/JPY ahead. The minutes from BoJ’s Summary of Opinions indicate that the price index is accelerating for both goods and services. It will take time for Japan to achieve sustained wage growth for that the BoJ must support the economy with macro policy.


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