USD/JPY climbs to 137.40 on hawkish Fed Powell’s remarks, BoJ policy and US Job data in focus

• USD/JPY has touched a high of 137.40 as Fed has confirmed more rates to tame sticky inflation.
• The risk aversion theme has pushed the 10-year US Treasury yields above 3.98%.
• Maintenance of an ultra-loose monetary policy is highly expected in the last BoJ Kuroda’s policy.

The USD/JPY pair has scaled to near 137.40 in the early Asian session after an unusual upside move inspired by hawkish commentary from Federal Reserve (Fed) chair Jerome Powell in his testimony before Congress. Fed’s Powell has endorsed more rates citing inflation as extremely sticky considering the incoming data from the United States economy.

Nominal gains have been recorded in the S&P500 futures after an intense sell-off on Tuesday, which could be minor short coverings amid a downbeat market mood. The US Dollar Index (DXY) settled Tuesday’s session at a three-month high above 105.60 as the risk of recession in the United States economy has soared. The risk aversion theme has pushed the 10-year US Treasury yields above 3.98%.

Fed’s Powell in his testimony before Congress unveiled a further roadmap for bringing down the sticky inflation. More interest rates are in pipeline as the current monetary policy is not restrictive enough to achieve price stability. According to the Fed Powell’s testimony, investors should be prepared for more rate hikes than earlier expected as economic indicators are conveying that inflationary pressures are extremely hot.

Investors should be aware of the fact that this was the first commentary from Fed’s Powell on interest rates after observing resilience in consumer spending and an upbeat labor market through January’s economic data.

Going forward, the release of the US Automatic Data Processing (ADP) Employment Change (Feb) data will be of utmost importance. The economic data is seen higher at 200K vs. the former release of 106K.

On the Tokyo front, investors are keenly awaiting the last monetary policy dictation from Bank of Japan (BoJ) Governor Haruhiko Kuroda, scheduled for Friday. Maintenance of an ultra-loose monetary policy is highly expected as the economy is focused on uplifting the labor cost index. The street has mixed responses towards tweaking yields on Japanese Government Bonds (JGBs).