USD/JPY remains sideways below 128.50 despite mix Japan’s inflation report

• USD/JPY is auctioning sideways below 128.50, volatility is expected amid hawkish commentary from Fed Williams.
• Fed Williams is favoring more interest rate hikes to bring inflation down to 2%.
• The Japanese Yen has remained muted amid mix Japanese inflation report.

The USD/JPY is juggling in a narrow range below the critical resistance of 128.50 in the early Tokyo session. The asset has not displayed any power-pack action after the release of the mixed National Consumer Price Index (CPI) report for December month.

Japan’s National headline CPI has landed at 4.0%, lower than the consensus of 4.4% but higher than the former release of 3.8%. While the core inflation that excludes oil and food prices has soared to 3.0% higher than the expectations of 2.9% and the prior release of 2.8%. National CPI that excludes fresh food has remained in line with the estimates at 4.0%.

A rising trend has been recorded in Japan’s inflation, which bolsters the case of exiting from the decade-long ultra-loose monetary policy by the Bank of Japan (BoJ). Japanese officials and BoJ Governor Haruhiko Kuroda and his teammates have been chattering about a shift in policy stance after stability in wage growth and economic prospects.

Meanwhile, the risk appetite of the market participants is improving again as the S&P500 futures are showing signs of reversal after recording negative returns consecutively for the past three trading sessions. The 10-year US Treasury yields have scaled above 3.40% as Federal Reserve (Fed) policymakers are expecting the continuation of a higher interest rates scenario for a longer period.

The US Dollar Index (DXY) dropped to near 101.60 but could find support as the hawkish commentary from New York Fed Bank President John Williams could trigger uncertainty. Fed policymaker cited that “With inflation still high and indications of continued supply-demand imbalances, it is clear that monetary policy still has more work to do to bring inflation down to our 2% goal on a sustained basis”, as reported by Reuters.