USD/JPY rebounds from 137.50 despite risk-on mood hogs limelight, US Inflation eyed

• USD/JPY has resurfaced after dropping to near 137.50 despite the cheerful market mood.
• The US Dollar index has turned volatile after failing to surpass the critical hurdle of 105.20.
• A fresh rebound in labor demand and an upbeat US service sector could propel a surprise rise in inflation.

The USD/JPY pair has rebounded after displaying a brief inventory adjustment of around 137.50 in the early Asian session. The US Dollar Index (DXY) has turned volatile after failing to surpass the critical hurdle of 105.20 consecutively. The USD Index (DXY) is hovering below the crucial support of 105.00.

Apart from that, a significant recovery in the risk-on profile is supporting the Japanese Yen. S&P500 futures are holding their Monday’s gains made on expectations of a decline in the United States Consumer Price Index (CPI) data.

Meanwhile, the demand for US Treasury bonds has dropped as investors expect higher interest rate guidance by the Federal Reserve (Fed) in its monetary policy meeting on Wednesday. The 10-year US Treasury yields have surpassed the critical resistance of 3.60%.

In Tuesday’s session, the spotlight will remain on the US inflation data. The headline CPI is seen lower at 7.3% against the former release of 7.7% led by a significant fall in oil prices and US Producer Price Index (PPI) data. Also, the core CPI is seen lower at 6.1% vs. the prior figure of 6.3%. Investors should not ignore a fresh rebound in demand for labor and upbeat demand in the US service sector, which could result in a surprise rise in the inflation rate.  

On the Tokyo front, a fresh drive of policy easing is expected from Bank of Japan (BOJ) policymakers to spur the extent of economic activities. Subdued demand from households led by weak wage growth is restricting inflation to steady at 2%.