USD/JPY slips to near 129.30 on sluggish Japan’s GDP, Fed’s policy tightening bets elevate

• USD/JPY has failed to overstep 129.50 on higher-than-expected Japan’s GDP.
• Fed may feature more 50 bps rate hikes to cool off the heated inflation.
• Japan’s inflation may elevate to 1.5% vs. 1.2% this week.

The USD/JPY pair is witnessing a gradual fall in the Asian session after the Japanese Cabinet Office reported the annual Gross Domestic Product (GDP) numbers at -1% vs. the expectation of -1.8% and the prior print of 3.8%. A less negative GDP figure has supported the Japanese yen against the greenback. The quarterly GDP numbers have also outperformed after landing at -0.2% against the estimated figure of -0.4%.

Apart from the GDP numbers, the vulnerable performance of the US dollar index (DXY) is also hurting the asset. The DXY is set to display more losses as the asset has tumbled below Tuesday’s low at 103.23. An improvement in the risk appetite of the market participants has dampened the safe-haven appeal of the DXY. Meanwhile, odds of a 50 basis point (bps) rate hike by the Federal Reserve (Fed) has been bolstered as the Fed is focusing on scaling down the soaring inflation in a most ‘convincing’ way.

To cool off the heated inflation, Fed needs to feature more rate hikes sooner rather than later. Investors should brace for more than two jumbo rate hikes in the calendar year. It is worth noting that the Fed has already announced one jumbo rate hike in the first week of May.

This week, the major event will be Japan’s inflation numbers, which are due on Friday. A preliminary estimate for the annual Consumer Price Index (CPI) figure is 1.5% vs. the prior print of 1.2%. Along with this, the core CPI could drop to -0.9%, against the former figure of 0.7%.

USD/JPY