USD/JPY extends gains to near 137.00 amid renewed hawkish Fed fears, Japan’s GDP eyed

• USD/JPY has extended its recovery to near 137.00 amid a downbeat market mood.
• Positive de-anchored inflation expectations could force the Fed for extreme policy tightening measures.
• Contraction in Japan’s GDP may compel more policy easing by the BOJ.

The USD/JPY pair has extended its upside move to near 137.00 after sustaining above the critical hurdle of 136.00 in the Tokyo session. The asset is witnessing time correction after printing the day’s high at 137.17. The major is expected to deliver more gains ahead amid a risk-off market mood.

Meanwhile, the US Dollar Index (DXY) is gathering momentum to test Friday’s high around 105.60. The US Dollar is expected to remain solid amid rising expectations for a higher interest rate peak by the Federal Reserve (Fed). Also, the risk aversion theme is supporting the US Treasury yields for further gains. The 10-year US Treasury yields are oscillating around 3.59%.

A stellar recovery in US Nonfarm Payrolls (NFP) and ISM Services PMI data are clarifying that the United States economy is healthy in spite of displaying slowdown signs. The Federal Reserve (Fed) has been escalating interest rates to bring a slowdown in the economy so that inflation could come down.  Upbeat US data has screwed the efforts of Fed chair Jerome Powell and has also faded expectations of a deceleration in the current rate hike pace by the Fed.

This week, investors will keep an eye on five-year Consumer Inflation Expectations data, which will release on Friday. Positive de-anchored inflation expectations could force the Fed to look for extreme policy tightening measures to curtail the same.

On the Japanese yen front, the market participants are awaiting the release of Friday’s Gross Domestic Product (GDP) data. On an annualized basis, Japan’s GDP is expected to contract by 1.1% against the prior contraction of 1.2%. Also, the quarterly data is expected to contract by 0.3%, similar to the prior print. A contraction in Japan’s GDP may compel more policy easing by the Bank of Japan (BOJ).