USD/JPY aims for firm-footing near 148.00 as Fed rate cut bets temper

• USD/JPY finds support near 148.00 as bets favouring a rate-cut decision by the Fed are fading away.
• Fed Daly is expected to support the ‘restrictive interest rates’ narrative amid stubborn inflation.
• Soft inflation data could force the BoJ to delay loose-policy exit plans.

The USD/JPY pair attempts to recover after discovering an interim support near 148.00. The asset is aiming to rebound as the US Dollar Index (DXY) is gaining traction due to tempered bets supporting an interest rate cut by the Federal Reserve (Fed) in March.

As per the CME Fedwatch tool, traders see a 53% chance for an interest rate cut by 25 bps in March, which were above 70% last week.

S&P500 futures have added significant gains in the European session, portraying a significant improvement in the risk-appetite for equity-asset class. The USD Index demonstrates a sharp contraction in volatility amid absence of the release of the front-line economic indicators. 10-year US Treasury yields have eased to near 4.13%.

Going forward, market participants will focus on the commentary from San Francisco Fed Bank President Mary Daly, who is expected to support the ‘higher interest rates’ narrative beyond March. The argument in favour of keeping interest rates at restricted levels would be supported by stubborn price pressures, steady labor demand and robust consumer spending.

On the Tokyo front, investors hope that the Bank of Japan (BoJ) could delay their plans of exiting from the ultra-loose monetary policy due to slower wage growth. Meanwhile, producers at factory gates are struggling to raise prices of goods and services due to subdued demand.

Apart from that, the National headline Consumer Price Index (CPI) data for December decelerated to 3.7% against the prior reading of 3.6%. Inflation data excluding fresh foods also softened to 2.3% as expected against the former reading of 2.5%.