USD/JPY records a fresh two-decade high at 134.70 ahead of hawkish Fed and neutral BOJ

• USD/JPY has registered a fresh two-decade high at 134.70 as investors see extreme hawkish Fed policy.
• Soaring inflation and the upbeat NFPs have opened doors for a 75 bps rate hike by the Fed.
• The BOJ is expected to keep policy unchanged and end the prudent monetary policy approach.

The USD/JPY pair has surpassed the last week's high at 134.55 and has registered a fresh two-decade high at 134.70 at open. The asset witnessed some offers while attempting to record a fresh new two-decade high earlier.

Higher odds of a jumbo rate hike by the Federal Reserve (Fed) in its monetary policy to be announced on Wednesday have bolstered the US dollar index (DXY). The DXY has crossed the last week’s high at 104.21 and is expected to print more gains as higher US Consumer Price Index (CPI) numbers have raised odds of a 75 basis point (bps) interest rate hike by the Fed.

The US Bureau of Labor Statistics has reported the US Consumer Price Index (CPI) at 8.6% on annual basis, much higher than the estimates of 8.3%. Also, the US Nonfarm Payrolls (NFP) were upbeat as the US economy added 390K jobs in May. Higher inflation and US NFP have opened the doors for the 75 bps rate hike announcement by the Fed. Although Fed Chair Jerome Powell stated that a 75 bps rate hike is not into our consideration, but considering the fresh inflationary pressures and the upbeat NFPs, the Fed may be required to consider a bumper rate hike announcement.

On the Tokyo front, the Bank of Japan (BOJ) will announce the interest rate decision on Friday. As per the market consensus, the BOJ is expected to maintain the status quo and will keep the interest rates unchanged. Although, a prudent monetary policy may be concluded this time and the BOJ would shift to a neutral stance on the monetary policy.