USD/JPY surges to 128.20 on Fed-BOJ divergence, 130.00 eyed

• USD/JPY has climbed above 128.20 as a broader weakness in the Japanese yen deepens.
• Fed’s James Bullard sounded more hawkish than earlier on guidance for this fiscal year.
• Japan’s National CPI is seen at 1.3%, higher than the prior print of 0.9%.

The USD/JPY pair has displayed a strong upside move after the hangover of the holidays. The asset is witnessing a sheer upside and has touched an intraday high of 128.23 in the Asian session. A divergence in the respective roadmap of interest rate adjustment by the Federal Reserve (Fed) and the Bank of Japan (BOJ) is strengthening the greenback against the Japanese yen.

The greenback is performing strongly as the market participants have started discounting an aggressive rate hike along with hawkish guidance for the rest of the year. St. Louis Fed President James Bullard on Monday stated that the Fed needs to elevate the interest rates to 3.5% and that too by the end of the year. A higher-than-expected hawkish gesture by the Federal Open Market Committee (FOMC) member James Bullard has made the US dollar index (DXY) unstoppable. The DXY has climbed above 101.00 and is attempting to establish above the same.

Meanwhile, the Japanese yen is awaiting the release of the National Consumer Price Index (CPI) later this week. Market consensus is seeing Japan’s inflation at 1.3% against the prior print of 0.9%. Despite, rising inflation, the Bank of Japan (BOJ) will prefer an ultra-loose monetary policy as the economy has yet not reached the pre-Covid-19 levels.

Going forward, investors will monitor the speech from Fed chair Jerome Powell which will provide clues for the likely monetary policy action by the Fed in its May monetary policy.