USD/JPY advances towards 137.00 amid firmer DXY and mixed Japan data

• USD/JPY is inching higher to recapture its fresh 23-year high around 137.00.
• The DXY has strengthened on the expectations of a prolonged higher rates scenario in the US.
• Japan’s mixed Industrial production data has weakened the yen bulls further.

The USD/JPY pair is aiming to recapture its fresh 23-year high around 137.00 as the US dollar index (DXY) has strengthened on hawkish commentary from Federal Reserve (Fed) chair Jerome Powell. In his speech at European Central Bank (ECB)'s annual Forum on Central Banking, Fed Powell has continued dictating the Fed’s objective of bringing price stability to the US economy.

As per remarks from Fed Powell, the US economy is rock solid considering the overall demand and the tight labor market. This makes it efficient to bear the consequences of the rapid rate hiking process. Accelerating price pressures have hit the real income of the households, however, the economy is strong enough to face the headwinds.

To contain the soaring price rise, the only measure is the announcement of interest rate hikes. However, the statement from Fed Powell that they don’t guarantee an inflation rate near 2% has spooked the market sentiment. This uncovers a prolonged upside for the US dollar index (DXY) as lower interest rates in the developed economy will be a bed-time story for the market participants. The DXY is advancing to reclaim its 19-year high at 105.79.

On the Tokyo front, mixed economic data has weakened the yen bulls further. The monthly Industrial Production figures have plunged to -7.2% vs. -0.3% estimated and the prior release of -1.5%. While the annual figure has improved to -2.8% from the consensus and the former release of -5.9% and -4.9% respectively.