USD/JPY approaches two-month high near 137.00 as BoJ considers easy policy appropriate

• USD/JPY is advancing towards 137.00 amid the Japanese Yen’s weakness due to dovish BoJ commentaries.
• The major contributor to the elevated inflation in the Japanese economy is the higher import prices.
• S&P500 futures have extended their losses after a bearish Tuesday, portraying a further decline in investors’ risk appetite.

The USD/JPY pair has extended its recovery above 136.26 in the Asian session. The responsive buying action in the asset from 135.80 looks so confident amid weakness in the Japanese Yen as Bank of Japan (BoJ) policymakers are considering the current expansionary monetary policy as appropriate to maintain the 2% inflation confidently.

National Consumer Price Index (CPI) in Japan has reached to multi-decade high near 4.2%. However, the major contributor to the elevated inflation is the higher import prices, not the strong wage gains and any resilience in the domestic demand. Therefore, the BoJ policymakers are advocating more stimulus in the economy so that the pre-pandemic growth levels could be achievable.

After dovish commentary from BoJ Governor Nominee Kazuo Ueda, BoJ Deputy Governor Ryozo Himino favored the sustenance of easy monetary policy to spurt the overall demand in the Japanese economy. However, he assured that a time will come when an exit from the ultra-loose monetary policy will be optimal.

Meanwhile, the risk profile is also not supporting the risk-sensitive assets as more rate hikes are highly expected from the Federal Reserve to strengthen its competence against the stick United States inflation. S&P500 futures have extended their losses after a bearish Tuesday, portraying a further decline in the risk appetite of the market participants.

The US Dollar Index (DXY) is gathering strength to stretch its upside momentum above 104.60 ahead. The USD Index is expected to display a power-pack action after the release of the US ISM Manufacturing PMI data. The street is anticipating a continuation of the contraction spell ahead.