USD/JPY sees a downside below 131.00 amid a weaker US Dollar Index

The USD/JPY pair is hovering around 131.00 after a less-confident rebound from 130.78 as settled on Friday. The asset is hoping for a continuation of weakness, which might drag the asset again below the immediate support of 131.00. The major is likely to face significant heat amid weakness in the US Dollar Index (DXY).

The USD Index remained in the grip of bears on Friday after surrendering its trading range of 103.47-104.57. The consolidation of two weeks displayed a breakdown as investors poured liquidity into risk-perceived currencies led by declining inflation expectations for CY2023. Analysts at Natixis cited the monetary policy expression by the Federal Reserve (Fed) is a restrictive one as the mortgage rate is higher than nominal wage growth in the United States economy.

While S&P500 remained choppy on Friday as the trading activity was trimmed dramatically amid a festive market mood but ended on a subdued note. The 10-year US Treasury yields advanced further to 3.88% as the demand for government bonds dropped.

This week, the critical event that will support the USD Index in gauging a decisive move will be the release of the Federal Open Market Committee (FOMC) minutes. The FOMC minutes will provide a detailed explanation of December’s monetary policy decision. Apart from that, the market participants will keep an eye on cues about economic projections and likely monetary policy action by Fed chair Jerome Powell ahead.

On the Tokyo front, clear inflation projections for the next two years by the Bank of Japan (BOJ) are supporting the Japanese Yen. Nikkei reported on Saturday that the BOJ is considering raising its inflation forecasts in January to show price growth close to its 2% target in fiscal 2023 and 2024.