USD/JPY JUGGLES ABOVE 133.00, DOWNSIDE SEEMS LIKELY AS FED TO CONTINUE SOFT RATE HIKE SPELL

The USD/JPY pair is displaying back-and-forth action above 133.00 in the Asian session. The asset has shown a recovery move from 132.50 but is struggling to extend gains amid the absence of strength in the US Dollar Index (DXY) after the Silicon Valley Bank (SVB) fallout. The loss of confidence of the market participants in the banking system of the United States has trimmed the safe-haven appeal dramatically.

S&P500 futures have recovered marginal losses recorded on Monday, indicating mild optimism in the market sentiment. The USD Index is aiming to recapture the immediate resistance of 103.80, however, the upside looks restricted amid expectations of the continuation of a smaller rate hike spell by the Federal Reserve (Fed). The rollback of 50 basis points (bps) rate hike expectations by the street has impacted the USD Index.

Meanwhile, the demand for US government bonds is narrowing again, which could be a recovery move from safe-haven assets. The 10-year US Treasury yields have rebounded to above 3.56%.

On Tuesday, the release of the United States Consumer Price Index (CPI) data would be a major trigger for the FX domain. Analysts at Wells Fargo expect “Another monthly increase of 0.4% in the overall CPI in February, which would put the annual rate at 6.0%. We still see inflation set to grind lower, but the process is likely to be bumpy and take time. Despite some directional improvement over the past couple of quarters, prices are still growing well above the Fed's 2% target, and the tight labor market suggests that there are still inflationary pressures that could forestall a full return to 2% inflation.”

Meanwhile, Japan Chief Cabinet Secretary Hirokazu Matsuno said on Monday, they don't see a big impact on Japan's financial companies from the SVB fallout. He further added, “Japan’s financial institutions have sufficient liquidity, capital base overall. “

Going forward, the minutes of the Bank of Japan's (BoJ) last monetary policy meeting conducted by ex-BoJ Governor Haruhiko Kuroda will be keenly watched, which is scheduled for Wednesday.