USD/JPY faces hurdles around 135.60 as DXY turns sideways, the spotlight is on Fed

• USD/JPY has failed to extend its upside above 135.60 as DXY is consolidating ahead of Fed’s policy.
• Higher price pressures are advocating a rate hike of 75 bps by the Fed.
• The BOJ is expected to stand with its prudent monetary policy to accelerate aggregate demand.

The USD/JPY pair has slipped below 135.30 after facing barricades around 135.60. On a broader note, the asset has remained in the grip of bulls therefore minor exhaustion doesn’t resemble a bearish reversal. It won’t be early to state that the asset is heading for a fresh new high ahead of the interest rate policy by the Federal Reserve (Fed).

The Fed is expected to dictate a rate hike by 75 basis points (bps). Fed chair Jerome Powell in his previous testimonies stated that a rate hike by 75 bps is not into consideration, which doesn’t rule out the odds of a 75 bps rate hike this time. The inflation situation has much worsened now as the annual figure has climbed to 8.6%, thanks to the advancing oil and food prices. To fix the inflation mess, the Fed will tighten its policy further and will elevate interest rates aggressively.

Meanwhile, the US dollar index (DXY) has turned sideways ahead of Fed’s policy and is expected to display a lackluster performance going forward. The DXY is hovering around 105.50 after registering a fresh 19-year high at 105.65.

On the Tokyo front, investors are awaiting the interest rate policy by the Bank of Japan (BOJ), which is due on Friday. The BOJ is expected to continue with its prudent monetary policy to keep flushing liquidity into the economy. The inflation rate in Japan has reached to its target but is majorly contributed by higher oil prices rather than a broad-based demand recovery.