USD/JPY refreshes four-month low below 141.00 amid risk-on market mood

• USD/JPY prints a fresh four-month low near 140.65.
• The market mood is cheerful as investors lean towards expectations of rate cuts by the Fed from March.
• The BoJ may exit from ultra-loose policy stance after wage growth would be able to keep inflation above 2%.

The USD/JPY pair is consistently declining as investors are confident about the rate cuts by the Federal Reserve (Fed) from March 2024. The asset has dropped to 140.65 and is expected to witness more losses amid a cheerful market mood.

S&P500 futures have generated nominal gains in the European session, indicating further improvement in the risk-appetite of the market participants. The US Dollar Index (DXY) has witnessed nominal buying interest near 100.60 but further downside is likely as investors see Fed starting to reduce borrowing costs due to easing price pressures.

As per the CME Fedwatch tool, the likelihood of a rate cut announcement by the central bank is almost 88%. Chances are almost 65% that the Fed will continue reducing interest rates in its May monetary policy meeting.

Contrary to market expectations, Fed policymakers believe that market reaction to commentary about rate cuts from Jerome Powell is overwhelming despite the achievement of price stability is far from over.

On the Tokyo front, investors hope that the Bank of Japan (BoJ) may not unveil their plans of exiting from the ultra-loose monetary policy until policymakers get enough confidence that wage growth would be sufficient to keep the National Consumer Price Index (CPI) stably above 2%. Meanwhile, the BoJ has announced that it will reduce its bond-buying operations in 2024.