USD/JPY CONTINUES WINNING SPELL ON FED’S HAWKISH INTEREST RATE OUTLOOK

• USD/JPY exhibits strength above 156.00 as the Fed maintains a hawkish tone on the interest rate outlook.
• Fed Bostic prefers to wait with current interest rates to be confident over the progress in disinflation.
• Japan’s officials remain worried over weak Yen-induced inflation.

The USD/JPY pair extends its winning spell for the fourth trading session on Tuesday. The asset strengthens as the US Dollar seems stabilizing due to endorsement for maintaining interest rates at their current levels for a longer period by Federal Reserve (Fed) officials.

Market sentiment turns slightly uncertain as Fed officials believe that a one-time decline in the United States inflation data is insufficient to build their confidence that price pressures will return to the desired rate of 2%. On Monday, Fed Vice Chair Philip Jefferson said it is too early to predict that the recent decline in inflationary pressures will be long-lasting.

In Tuesday’s early American session, the communication from Fed Governor Christopher Waller and Atlanta Fed Bank President Raphael Bostic was clear that they want to see more good inflation data before supporting policy normalization. Fed Bostic said he will wait longer for the rate cut to be sure that inflation will not bounce again.

Fed's Bostic: Fed has to be cautious about first rate move

When asked about a concrete timeframe for rate cuts, Bostic said he doesn’t expect before the fourth quarter of this year. On the inflation outlook, Bostic commented that business owners have experienced a decline in pricing power but are confident about economic prospects.

Considering overnight futures, the S&P 500 is expected to open on a flat-to-negative note. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, rises to 104.70. 10-year US Treasury yields have rebounded to 4.42%.

On the Tokyo front, Japan’s Finance Minister Shunichi Suzuki showed concerns over rising price pressures that are inspired by weak Japanese Yen. Suzuki said, "One of our major goals is to achieve wage increases that exceed the rise in prices," Suzuki said. "On the other hand, if prices continue to remain high, it will be difficult to reach this target even if wages rise."

This week, the USD/JPY pair will dance to the tunes of the Federal Open Market Committee (FOMC) minutes for the May meeting and Japan’s National Consumer Price Index (CPI) data for April, which will be published on Wednesday and Friday