USD/JPY faces barricades around 131.50 as solid Yen’s appeal impedes Fed’s rate hike

• USD/JPY is sensing hurdles around 131.50 as Yen's solid appeal has faded the impact of Fed’s rate hike.
• Fed Powell has confirmed that rate cuts are not on the agenda in 2023.
• The recent US banking debacle cannot rule out the expectations of credit tightening for businesses and households.

The USD/JPY pair is struggling to stretch its recovery above the immediate resistance of 131.50 in the early Tokyo session. It seems that attempts made by the major to surpass the 131.50 resistance are delicate. The asset is failing in following the footprints of the US Dollar Index (DXY) as the latter has displayed a decent recovery after a perpendicular sell-off.

It looks like the solid appeal of the Japanese Yen as a safe-haven has faded the impact of the interest rate hike by the Federal Reserve (Fed). Investors should be aware of the fact that the market participants were ‘gung-ho’ for the Japanese Yen amid fears of United States banking sector turmoil.

While delivering the monetary policy statement, Fed chair Jerome Powell confirmed that rate cuts are not on the agenda in 2023 as the central bank is dedicated to scaling down the stubborn inflation. However, commentary on interest rate guidance remained absent to which the street is anticipating that the Fed is close to pausing the policy-tightening program.

On the recent banking fiasco, Fed Powell has loaded blame on the management of Silicon Valley Bank (SVB) citing it as ‘failed badly’. He further added that the US banking system is sound and resilient. Still, the recent debacle cannot rule out the expectations of credit tightening for businesses and households, which will cool off overall demand and inflation further.

The burden of consecutive 25 basis points (bps) rate hikes by the Fed critically impacted S&P500. The 500-US stocks banks were heavily dumped as further credit tightening would result in more contraction in the economic activities, portraying a risk-off market mood. The US Dollar Index (DXY) is demonstrating a back-and-forth action around 102.50 after a recovery move as investors await a Q&A session with Fed Powell for further clarity.