USD/JPY struggles to surpass 131.00 as investors await US ISM PMI for fresh cues

• USD/JPY has sensed hurdles around 131.00 ahead of US ISM Manufacturing PMI data.
• S&P500 futures are expected to react to weaker economic projections from the IMF.
• For the achievement of higher inflation targets by the BOJ, the central bank needs to infuse more liquidity into the economy.

The USD/JPY pair is facing firmer barricades in overstepping the critical resistance of 131.00 in the early Tokyo session. The asset is hovering around a 12-day low and is therefore expected to remain on the tenterhooks.

The risk profile is still confusing as the market may take sufficient time to settle after a festive mood and a long weekend. S&P500 futures are displaying subdued performance as the equity domain of the United States will react to the economic projections provided by the International Monetary Fund (IMF).

Managing Director Kristalina Georgieva of the IMF cited on the CBS Sunday morning news program that “For much of the global economy, 2023 is going to be a tough year as the main engines of global growth - the United States, Europe, and China – all may experience weakening activity,”.

Going forward, the trading action from the US Dollar Index (DXY) will display the mood of the market. The major trigger that will impact the USD Index will be the United States ISM Manufacturing PMI data. According to the estimates, the US ISM Manufacturing PMI data is expected to improve to 49.6 from the former release of 49.0. Apart from that, investors will focus on New Orders Index data that provide cues about the forward demand in the United States economy. The economic data is seen higher at 48.1 vs. the former release of 47.2.

On the Tokyo front, a continuation of ultra-loose monetary policy could impact the Japanese Yen. The Bank of Japan (BOJ) has already set inflation targets for CY2023 and 2024 close to 2%, which will require more hikes in wage rates and continuous release of liquidity in the market to support the aggregate demand.