USD/JPY extends recovery to near 138.50 as investors’ risk appetite loses strength

• USD/JPY has extended its recovery to near 138.50, tracing action in the USD Index.
• Despite soft price pressures, Fed Waller believes that two more interest rate hikes are appropriate.
• Japanese officials are still observing FX moves despite the recent depreciation in the US Dollar against the Japanese Yen.

The USD/JPY pair has stretched its recovery to near 138.50 in the London session. The asset has traced the recovery move by the US Dollar Index (DXY). The USD Index rebounded after a six-day losing spell to near 99.50 as investors have got anxious after hawkish commentary from Federal Reserve (Fed) policymakers.

S&P500 futures are demonstrating a subdued performance in Europe, portraying caution among market participants amid an overall upbeat market mood. US equities were heavily bought on Thursday, supported by a rally in technology stocks. Investors are hoping that tech-savvy stocks could deliver decent figures in the second-quarterly earnings season despite weak performance in Bank and Financial Services Industry (BFSI).

The USD Index has found intermediate support near 99.50 and is gathering strength to recapture the psychological resistance of 100.00. Despite soft price pressures, Fed Governor Christopher Waller believes that two more interest rate hikes are appropriate this year to bring down inflation to 2%. Although inflation is consistently decelerating, the core Consumer Price Index (CPI) at 4.8% is far from the desired rate of 2%.

Meanwhile, data released from the Fed showed that borrowings by commercial banks from the Fed’s emergency lending programs declined slightly straight for the second week. US firms are avoiding credit to dodge high-interest payment obligations.

On the Japanese Yen front, investors are looking for cues on whether the Bank of Japan (BoJ) will continue its ultra-dovish policy stance or tweak its Yield Curve Control (YCC). Apart from that Japanese officials are still observing FX moves despite the recent depreciation in the US Dollar against the Japanese Yen.