USD/JPY rebounds from 154.00 as investors digest fears of Japan’s intervention

• USD/JPY finds buying interest near 154.00 as investors see Japan’s intervention mere a temporary solution to support weak Japanese Yen.
• Japan’s National CPI data will impact market expectations for BoJ’s rate hikes.
• The US Dollar corrects despite the Fed is expected to keep interest rates higher for a longer period.

The USD/JPY pair recovered intraday losses and rebounds to 154.40 in Thursday’s European session. The asset finds buying interest as investors digest fears of potential Japan’s intervention in the FX domain to support the Japanese Yen from further declining.

Japan’s Vice Finance Minister for International Affairs Masato Kanda said on Wednesday that authorities would not rule out any options in dealing with excessive yen moves, reported Reuters.

Investors see Japan’s stealth intervention in the FX domain a temporary support to the Japanese Yen but this will not solve its fundamental problem. Lack of confidence among market participants over further policy tightening by the Bank of Japan (BoJ) amid doubts over wage growth spiral.

Meanwhile, investors focus on Japan’s National Consumer Price Index (CPI) data for March, which will be published on Friday. The inflation data will significantly influence speculation for the BoJ’s interest rate outlook. Japan’s annual headline CPI and measure excluding fresh foods are estimated to have softened to 2.7% from 2.8% in February. Easing price pressures would negatively impact market expectations for further policy-tightening by the BoJ.

Market sentiment remains upbeat despite Israel's absence of immediate response to Iran’s attack on its territory. S&P 500 futures have posted significant gains in the European session. The US Dollar Index (DXY) corrects sharply to 105.85 despite investors seeing the Federal Reserve (Fed) delaying rate cuts to later this year.

The CME FedWatch tool shows that traders have priced out rate cut expectations for June and July meetings and see the September meeting as the earliest time in which the Fed could begin lowering interest rates.