USD/JPY recovers from daily lows at 126.30 as DXY strengthens on downbeat market tone

The USD/JPY pair tumbled after hitting a high of 126.80 but recovered sharply amid a recovery in the US dollar index (DXY). Negative market sentiment has improved the appeal for the safe-haven assets and eventually the demand for the DXY. The major is approaching its two-decade high at 132.38 amid broader weakness in the Japanese yen.

Advancing odds of a 50 basis point (bps) interest rate hike by the Federal Reserve (Fed) is favoring the greenback bulls. Higher inflation and participation rate in the US economy have sounded the half-a-percent rate hike reasonable to corner the inflation mess. This week, a speech from Fed Chair Jerome Powell will be crucial before the announcement of May’s monetary policy. The insights from the Speech will provide principal guidance to the market participants.

Meanwhile, the Bank of Japan's (BOJ) ultra-loose monetary policy is going to keep the yen on the weaker side. As per Reuters, the BOJ is expected to raise its fiscal 2022 inflation forecast to above 1.5% from the current 1.1% reported in the April meeting while downgrading the fiscal-2022 growth forecast from the current 3.8% expansion.

Apart from the speech of Fed Chair Jerome Powell, investors will also focus on Japan’s yearly industrial Production data, which is likely to print at 0.2%, in line with the previous print of 0.2%.