USD/JPY stretches higher to near 150.30 on BoJ uncertainty about policy tightening

• USD/JPY extends its gains on BoJ uncertainty about monetary policy tightening.
• Japanese media reports that the government could officially declare an end to deflation.
• The US Dollar Index (DXY) remains in the negative territory despite improved US Treasury yields.

USD/JPY extends its gains for the second successive session, trading higher around 150.30 during the European session on Monday. The Japanese Yen (JPY) faced challenges following remarks by Bank of Japan (BoJ) Governor Kazuo Ueda on Friday, who cast doubt on the sustainability of Japanese inflation reaching the 2% target. With inflationary pressures diminishing rapidly, there's a possibility that the BoJ may postpone its plans for monetary policy tightening.

However, reports from Japan's Kyodo News agency indicate that the government is contemplating officially declaring an end to deflation, signaling a heightened possibility of policy tightening. A decision will be made after assessing the strength of the annual labor-management wage talks scheduled for March 13 and considering the outlook for price trends.

The US Dollar Index (DXY) remains steady around 103.80, as it looks for direction amid improved US Treasury yields. However, the USD faced pressure following a subdued February’s manufacturing figures from the United States (US).

The US ISM Manufacturing PMI dropped to 47.8 from 49.1, well below the market's expectation of 49.5. Additionally, the US Michigan Consumer Sentiment Index fell to 76.9 in February, missing the expected level of 79.6. Despite these concerning indicators, Federal Reserve (Fed) officials have not signaled immediate interest rate cuts, lending some support to the USD.

Investors closely monitor upcoming economic releases such as the ISM Services PMI, ADP Employment Change, and Nonfarm Payrolls for February to assess the overall US economic health and potential Fed policy decisions. Moreover, Federal Reserve Chair Jerome Powell’s speech will be observed on Wednesday and Thursday for further insights into the central bank's monetary policy stance.