USD/JPY rises to 148.00 as uncertainty over BoJ quitting negative rates deepen

The USD/JPY pair rebounds to crucial resistance of 148.00 as investors hope that the Bank of Japan (BoJ) will delay its plans to quit negative interest rates. The asset recovers as optimism over BoJ hiking interest rates in the March policy meeting wanes, and stubborn United States inflation data for February has dents hopes of the Federal Reserve (Fed) reducing interest rates in June.

The commentary from BoJ Ueda and FM Suzuki has dampened market expectations for BoJ exiting the negative rates. BoJ Ueda said on Tuesday that the economy has recovered on a few economic grounds though consumption remains weak. Finance Minister Shunichi Suzuki said separately that Japan was not at a stage where it could declare a victory over deflation.

The market sentiment remains slightly cautious as US Treasury Yields rise to 4.18% on expectations that the Fed will hold interest rates higher for some time longer than what previously anticipated. The US Dollar Index (DXY) is slightly down at 102.85 even though expectations for the Fed reducing interest rates in the June meeting have eased.

According to the CME Fedwatch tool, the chances of a rate cut have dropped to 65%, from above 72% before the release of February’s inflation report.

Meanwhile, investors shifted focus to the US Retail Sales data for February, which will be published on Thursday. The monthly Retail Sales are expected to have increased by 0.8%, against a decline of 0.8% in January. An upbeat Retail Sales data will exhibit resilient consumer spending, which could prompt expectations for the Fed to keep interest rates unchanged in the first half of this year.