USD/JPY oversteps 137.00 as odds of further divergence in Fed-BOJ policy escalate

• USD/JPY has printed a fresh 23-year high of 137.28 on dovish commentary from the BOJ.
• Higher consensus for inflation and firmer US NFP are advocating for a bumper rate hike by the Fed.
• Solid US NFP has provided much freedom to the Fed to elevate interest rates.

The USD/JPY pair has climbed above the significant hurdle of 137.00 for the first time in the past 23 years as the chances of further escalation in the Federal Reserve (Fed)-Bank of Japan (BOJ) has escalated. The release of the robust US Nonfarm Payrolls (NFP) by the Department of Labor on Friday has bolstered the odds of a consecutive 75 basis points (bps) by the Fed.

The US NFP landed at 372k jobs for June, significantly higher than the estimates of 268k but a little lower than the prior release of 384k. The Unemployment Rate remained in line with estimates and the prior print at 3.6%. No doubt, the upbeat US NFP will delight the Fed to feature a rate hike decision without much hesitation.

Apart from that, higher consensus for the US Consumer Price Index (CPI) is bolstering the case for a bumper rate hike announcement by Fed chair Jerome Powell. The preliminary estimate for the plain-vanilla US CPI is 8.7% on an annual basis. The inflation rate is increasing at a diminishing rate, however, the figure is still more than four times of the targeted inflation rate, which is at 2%.

On the Tokyo front, dovish commentary from BOJ Governor Haruhiko Kuroda has weakened the yen bulls. The comments from BOJ’s Kuroda in his speech at the quarterly meeting of the central bank's branch managers “We won't hesitate to take additional monetary easing steps as necessary" with an eye on risks, have underpinned the pair. Also, the guidance is indicating that the short-term and long-term rates will remain steady or shift lower.