USD/JPY declines to near 143.00 as DXY weakens further ahead of Fed policy

• USD/JPY has extended its losses after slipping to near 143.00 as DXY has weakened further.
• The DXY has dropped below 109.50 as investors have already discounted the rate hike by the Fed.
• Japan’s National CPI and core CPI have landed at 3.0% and 1.6% respectively.

The USD/JPY pair has extended its correction after surrendering the immediate hurdle of 143.15. The decline is purely parallel to the subdued performance of the US dollar index (DXY). A mixed National CPI has failed to strengthen the yen bulls. The headline National CPI has landed at 3%, higher than the forecasts and the prior release of 2.6%. Also, the core CPI that excludes food and oil prices has improved to 1.6% that the former figure of 1.2% but remained lower than the expectations of 1.7%.

On a broader note, the asset is oscillating in a range of 142.55-143.80 after declining from around 145.00.

The asset is expected to display a lackluster performance as investors are awaiting the interest rate decision by the Federal Reserve (Fed). In order to regard its foremost priority of cooling the red-hot inflation, the Fed will advance towards the path of hiking interest rates. Investors should not be surprised with a rate hike of more than 75 basis points (bps) as price pressures are not responding effectively to the current pace of accelerating borrowing rates.

Meanwhile, the DXY declined on Monday after failing to sustain above the psychological resistance of 110.00. The DXY witnessed a steep fall as investors started discounting the expectations of a subpar rate hike.

On the Tokyo front, the Bank of Japan (BOJ)’s recent plan of intervening in the Fx moves is hinting at a shift in monetary policy stance. A worried economy due to currency depreciation from a tad longer period will prefer to shift its stance from an ultra-dovish to neutral. Well, the economic situation is not supporting a stance shift but caring for domestic currency is a major concern now.