USD/JPY recovers majority of losses as risk appetite improves further, BOJ policy buzz

• USD/JPY has rebounded firmly to near 149.00 amid sheer volatility in the DXY.
• Firmer market sentiment has brought a recovery in the asset.
• The BOJ is expected to continue its ultra-dovish monetary policy ahead.

The USD/JPY pair has recovered almost its entire morning losses and has scaled back to near 149.00 in the Tokyo session. Earlier, the asset plunged to near 145.48 as the US dollar index (DXY) turned extremely volatile. The DXY witnessed a wild swing in the 111.46-112.26 range.

Market sentiment is extremely positive as S&P500 futures have gained further after a bullish Friday. The 10-Year US Treasury yields have dropped marginally to 4.21%. Last week, the returns on 10-year US Treasury yields top around 4.34% in the past 14 years.

Meanwhile, Reuters has cited that the second straight knee-jerk reaction in the USD/JPY pair is a suspected early intervention by the Bank of Japan (BOJ) in the FX market.

Analysts at National Australia Bank (NAB) in Sydney have cited that “It’s blindingly obvious that the BOJ is intervening,”

In early Asia, Japan’s top currency diplomat Masato stated that the administration is ready to take necessary action 24*7 to support the Japanese yen against one-sided speculative moves in the currency market. Japanese officials denied commenting on their intervention in FX markets but promises to take necessary action against disorderly market moves.

Going forward, the interest rate decision by the Bank of Japan (BOJ) will be of utmost importance, which is due on Wednesday. Weak economic fundamentals due to external demand shocks will force the BOJ to continue its dovish stance on interest rates. Last week, BOJ’s Governor Haruhiko Kuroda crossed wires, citing that Japan's economy is vulnerable to external demand shock, which could tip it back to deflation. This clears the fact that the concept of policy tightening is far from thought.