USD/JPY retraces the recent losses near 149.00 on positive risk sentiment

• USD/JPY rebounds due to positive risk sentiment amid Middle-East conflict.
• Japanese Yen failed to respond to the BoJ’s consideration of an upward revision of the core inflation estimate.
• Fed’s remarks led investors to downplay the likelihood of additional rate hikes.

USD/JPY recovers from the losses registered in the previous session, trading higher around 149.00 during the European session on Tuesday. The pair rebounded on the recovery of the US Dollar (USD).

The positive risk sentiment in the midst of the Middle-East conflict may exert pressure on the safe-haven Japanese Yen (JPY), emerging as a significant factor offering support to the USD/JPY pair.

Early on Saturday, Hamas initiated an assault on Israel using land, air, and sea forces. In retaliation, the Israeli army has commenced a forceful response in Gaza, marking the region's most intense military conflict to date.

The Bank of Japan (BoJ) is reportedly contemplating an upward revision of the fiscal year (FY) 2023/24 core Consumer Price Index (CPI) estimate to approximately 3%, as compared to the 2.5% forecast made in July, reported by the Kyodo news agency on Tuesday.

Japan’s non-seasonally adjusted Current Account for August declined to ¥2,279.7B, compared to the forecast of ¥3,090.9B and the previous reading of ¥2,771.7B. The Japanese economic calendar for the rest of the week is notably thin, with only low-impact data scheduled for release.

Japanese Finance Minister Shunichi Suzuki stated on Tuesday that the "current Yen weakening is caused in part by interest rate differentials." Suzuki also mentioned that Japan would lead a meeting of finance ministers and central bank governors from the Group of Seven (G7) advanced nations on October 12 to discuss the war in Ukraine and the world economy.

The US Dollar Index (DXY) bids around 106.00, by the press time. However, the US Dollar failed to admire the stronger US Nonfarm Payroll data released on Friday.

Moreover, the depreciation of the US Dollar (USD) can be attributed to a decline in US Treasury yields on Monday, with the 10-year US Treasury bond yield standing at 4.67% at the current press time.

Additionally, remarks made by Federal Reserve (Fed) officials overnight led investors to downplay the likelihood of additional rate hikes, contributing to a further drop in US bond yields. Consequently, this development is perceived as weakening the strength of the Greenback.

Dallas Fed president Lori Logan suggested that there might be less necessity to raise the Fed funds rate, and Fed Vice Chair Philip Jefferson acknowledged the importance of the central bank proceeding cautiously with any additional increases in the policy rate.

Investors’ focus for the week in terms of economic data will be on inflation figures, with the Producer Price Index (PPI) on Wednesday, followed by the FOMC meeting minutes and the Consumer Price Index (CPI) on Thursday.