USD/JPY rebounds from 131.00 as US Biden promises to safeguard US interest against China

• USD/JPY has rebounded after dropping below 131.00 following US Biden’s SOTU commentary.
• US Biden has proposed taxing billionaires by raising the tax slab of corporate buyback four times.
• A recovery from USD/JPY indicates that the impact of BoJ’s stealth intervention is fading away.

The USD/JPY pair has sensed a buying interest after correcting below 131.00 in the Asian session. The asset has picked demand as the risk profile expresses caution amid commentary from US President Joe Biden while addressing his second State of the Union (SOTU) and first in front of a divided Congress.

A consideration of taxing high net-worth individuals in the United States by quadrupling the tax on corporate stock buybacks has resulted in some losses in the S&P500 futures. Apart from that, a proposal to pass legislation to stop big tech from collecting personal data on children might weigh on the 500-US stock basket futures. Therefore, a decline in the risk appetite of the market participants is highly expected.

About relations with China, US Biden commented, “We are committed to working with China where it can advance American interests and benefit the world, “If China threatens US sovereignty, the US will act to protect the country.

The US Dollar Index (DXY) is demonstrating a subdued performance as the hawkish interest rate guidance from Federal Reserve (Fed) chair Jerome Powell on Tuesday failed to improve the safe-haven appeal. Fed Powell shrugged off rumors about a pause in the policy-tightening spell by the Fed, citing that the strong labor market report is why the central bank believes that a hasty decision of sounding dovish could trigger inflation projections on a higher side.

The USD Index displayed sheer volatility despite Minneapolis Fed President Neel Kashkari told CNN Tuesday that the labor market is still too hot and that it makes it harder to bring inflation down, as reported by Reuters. He further added, "We may have to hold rates at a higher level for longer,"

On the Japanese Yen front, the impact of the Bank of Japan (BoJ) stealth invention in the FX domain to support the Japanese Yen is fading away. The street expects the forecast for the Japanese Yen to be based on BoJ Governor Haruhiko Kuroda’s successor selection.

A note from OCBC states, “Focus this week will be on the list of BoJ nominees that will likely be presented to parliament on 10 February though reports suggest a delay to next week. Amamiya’s appointment would be most supportive of the USD/JPY upside, while Yamaguchi’s appointment could weigh down the Japanese Yen.