USD/JPY eyes 5-year high at 118.70 despite subdued DXY, investors await Fed and BOJ policy

• USD/JPY looks to reclaim a 5-year high at 118.66 on weakening yen amid soaring commodity prices.
• The expectation of China’s military assistance to Russia is underpinning the safe-haven appeal.
• Interest rate decisions from the Fed and BOJ will be the key events to watch out for this week.

The USD/JPY is rallying sharply as investors are underpinning the greenback against the Japanese yen on a likely interest rate hike from the Federal Reserve (Fed) in its Wednesday’s monetary policy meeting. The major is continued with its six-day winning streak and is aiming to reclaim a 5-year high at 118.66.

The US dollar index (DXY) is trading subdued around 99.00 as investors are waiting for the announcement of the monetary policy by the Fed before initiating fresh positions. An interest rate hike is much likely on the cards but the catalyst, which carries significant importance, is the extent of the interest rate hike by the Fed. Moreover, investors demand more clarity over the recent development of the Russia-Ukraine war. The US has claimed that China is willing to provide military assistance to Russia after Moscow requested Sino for military support in the invasion of Ukraine. In response to that, China has denied any kind of request.

The interest rate decision from the Bank of Japan (BOJ) is also due later this week. The BOJ has kept its interest rates to the ground and is looking to maintain the status-quo on rising odds of stagflation in Japan. Rising prices of various commodities post-attack on Ukraine have dampened the financial flows of leading importers. Japan, being a major importer of oil and base metals is facing serious outflows, which is hurting its fiscal mathematics.