USD/JPY eyes more losses below 137.50 as US Biden to exercise 14th Amendment right

The USD/JPY pair has dropped back to near the crucial support of 137.50 in the Asian session. The asset is expected to deliver more losses below the aforementioned support as a delay in the US debt-ceiling raise is creating chaos in global markets.

S&P500 futures have recovered some losses posted in early Asia, however, the market mood is quite risk-off as US Treasury is coming closer to a default situation each day passes by. US President Joe Biden called off the current bipartisan deal with House of Representatives Kevin McCarthy citing them as unacceptable and offered to prevent Democrats from winning re-elections in 2024.

The street is anticipating that US Biden might exercise his 14^th Amendment right, in case Republicans hold their current partisan terms, to save the United States economy from default as it could spike interest rates and bring sheer volatility in financial markets. However, the White House is not sure that they have sufficient time to exercise the un-tested way out.

The US Dollar Index (DXY) is looking for a cushion near 103.00, however, the downside seems favored as the Federal Reserve (Fed) is expected to keep interest rates steady in its June monetary policy meeting. Meanwhile, the 10-year US Treasury yields have faced some pressure while attempting a break above 3.7%.

On the Japanese Yen front, an acceleration in inflationary pressures has shown some signs that economic recovery in Japan is intact. National headline Consumer Price Index (CPI) jumped to 3.5% from the prior release of 3.2% while the street was anticipating a deceleration to 2.5%. Core CPI that doesn’t include food and energy prices accelerated to 4.1% vs. the consensus of 3.4% and the former release of 3.8%. However, the Bank of Japan (BoJ) will maintain its dovish interest rate policy stance to keep inflation steadily above 2%.