USD/JPY establishes above 133.00 as focus shifts to US Michigan CSI

• USD/JPY is auctioning in a balanced profile above 133.00 as DXY extends recovery.
• A downward US CPI will result in a trimmed extent of hawkish guidance by the Fed.
• An ongoing Japan cabinet re-shuffle will keep the yen bulls on the tenterhooks.

The USD/JPY pair has extended its recovery and has managed to sustain above the critical hurdle of 133.00 in the Asian session. The asset has elevated its pullback move after nosediving to near 132.00 on Wednesday. The further journey is likely to remain critical as more upside would require sufficient strength from the greenback bulls.

The asset shifted into a negative trajectory after the US Consumer Price Index (CPI) tumbled to 8.5% from the prior release of 9.1%. Exhaustion signs in the price pressures after remaining a headache for the Federal Reserve (Fed) cheered the market participants. While the US dollar index (DXY) faced immense heat from the market participants.

No doubt, a lower release of US inflation has cooled off volatility in the global market and has trimmed the odds of extremely hawkish guidance by the Federal Reserve (Fed). However, the odds of a rate hike are still intact as the road to reaching a 2% inflation rate is far from over. Therefore, the US dollar index (DXY) has extended its recovery in the Asian session after a pullback move from a six-week low of 104.64.

On the Tokyo front, the ongoing cabinet re-shuffle is expected to result in a dramatic change in the situation of the Japanese yen on a broader basis. Finance Minister Shunichi Suzuki said that Japan’s financial position is still severe. He added that “it's critical to continue reacting to covid and inflation.”

In the remaining week, the US Michigan Consumer Sentiment Index (CSI) will hog the limelight. The sentiment data is expected to improve to 52.2 from the prior release of 51.5. This may strengthen the DXY as higher consumer confidence in the US economy will accelerate the overall demand.