USD/JPY seems stabilized above 150.00 as risk-on impulse fades

The USD/JPY pair aims for stability above the psychological figure of 150.00 as a decline in the risk appetite of the market participants has dampened the appeal for risk-sensitive currencies. The asset sharply rebounded from 149.40 on expectations that resilience in the United States economy could make the need for more interest rate hikes from the Federal Reserve (Fed) appropriate.

S&P500 futures generated some losses in the European session, portraying that the risk-taking ability of investors is fading away. US equities surrendered significant gains on Monday and ended the session with some nominal gains as long-term bond yields revived ahead of a speech from Fed Chair Jerome Powell, which is scheduled for Wednesday.

The US Dollar Index (DXY) has extended recovery to near 105.50 after commentary from Minneapolis Fed Bank President Neel Kashkari. The Fed policymaker emphasized the need for more efforts to be made by the central bank to control inflation. Contrary to Kashkari, Fed Governor Lisa Cook said that current interest rates are adequate to bring down inflation to 2%.

The recovery in the US Dollar and bond markets could falter as investors hope that the Fed is done with hiking interest rates. As per the CME Fedwatch tool, traders see an 85% chance for interest rates remaining unchanged in the range of 5.25-5.50% till the year-end.

On the Japanese Yen, Japan’s authority is closely watching FX moves for intervention. A stealth intervention would be insufficient to defend the tide against the Japanese Yen, which is backed by the expansionary monetary policy stance of the Bank of Japan (BoJ). BoJ Governor Kazuo Ueda is not expected to shift policy stance anytime soon till the comfortable stability of inflation above 2% through wage growth.