USD/JPY aims to break 136.20 as Fed rate hike fears back in action

• USD/JPY is making efforts in breaking above 136.20 amid solid US Treasury yields.
• S&P500 futures have added marginal gains, portraying a minor recovery in investors’ risk appetite.
• US New Orders Index PMI and Manufacturers' Prices Paid convey that the inflation situation is getting complex.

The USD/JPY pair is struggling to extend its auction above 136.40 while the downside looks supported around 136.00 in the Asian session. The asset is expected to continue its upside journey and deliver a break above the 136.40 resistance as investors are eyeing more rates from the Federal Reserve (Fed)  to strengthen its defense in the battle against persistent inflation.

S&P500 futures have added marginal gains in the Asian session after a negative Wednesday, portraying a minor recovery in investors’ risk appetite, however, the overall market mood is quite risk-averse. The range of the US Dollar Index (DXY) looks capped after wild movements, is expected to display a contraction ahead.

It seems that the hawkish stance of Federal Reserve (Fed) policymakers has infused fresh blood into the US Treasury yields. The alpha delivered on 10-year US government bonds has scaled to 4%.

Considering the stubborn nature of the United States Consumer Price Index (CPI), Atlanta Fed President Raphael Bostic expected the central bank to push the terminal rate to the 5.00%-5.25% range. Apart from that, the Fed policymaker expects the central bank to keep the terminal rate elevated beyond 2023. Also, Fed chair Jerome Powell has been reiterating that a consideration of a premature rate cut could have a devastating impact on the inflation situation.

The release of the US ISM Manufacturing PMI on Wednesday has cleared that the price index is expected to deliver a rebound ahead. Feb PMI numbers failed to impress the street, however, New Orders Index and Manufacturers Prices Paid managed to convey that the inflation situation is getting complex. The order book looks solid as figures jumped to 47.0 from the expectations of 43.7 and the former release of 42.5. And, the Manufacturing Price Paid climbed to 51.3 vs. the consensus of 45.0 and the former release of 44.5, which indicates that Producer Price Index (PPI) might deliver a surprise upside ahead.

On the Tokyo front, back-to-back dovish commentaries from Bank of Japan (BoJ) policymakers are impacting the Japanese Yen. After dovish commentaries from BoJ Governor Nominee Kazuo Ueda and BoJ Deputy Governor Ryozo Himino, the current monetary policy has also been considered as appropriate by board member Junko Nakagawa. He cited “An expansionary policy is highly essential for supporting the economy and fueling wages.”