• USD/JPY has slipped sharply from 148.00 as the risk-on profile has regained strength.
• Fed may not pause policy tightening measures till the inflation rate gets halved.
• An upbeat Japan’s Retail Sales data has supported yen.

The USD/JPY pair has witnessed a steep fall after failing to sustain above the critical hurdle of 148.00 in the Asian session. The asset has slipped to near the immediate cushion of 147.82 as the US dollar index (DXY) has turned volatile. The DXY has refreshed its day’s low at 110.72 and is expected to display more weakness as the risk-on profile has rebounded firmly.

S&P500 futures are holding their previous week’s gains, which has restricted the DXY bulls to gain traction. Meanwhile, the 10-year US Treasury yields have rebounded firmly to near 4.03% ahead of the monetary policy decision by the Federal Reserve (Fed).

The odds for a 75 basis point (bps) rate hike by the Fed are gaining gradually. As per the CME FedWatch tool, the chances for a third quarter-to-a-percent rate hike stand at 83.7%.

According to the economists’ poll by Reuters, the Fed will announce a fourth consecutive 75 bps rate hike. The report further cited that the central bank should not pause until the inflation rate is scaled down by half.

This week, ISM Manufacturing PMI data will also remain in the spotlight. As per the preliminary estimates, ISM Manufacturing PMI data is seen lower at 50.0 vs. the prior release of 50.9. Also, the ISM New Orders Index will be the crucial catalyst that displays forward demand and is seen significantly higher at 49.1 against the former figure of 47.1.

On the Tokyo front, upbeat Japanese Retail Trade data has also supported yen. The monthly and annual Retail Trade have accelerated to 1.1% and 4.5% vs. the projections of 0.6% and 4.1% respectively. The Larger Retail Sales have soared to 4.1% against the estimates of 3.6%. Apart from that, annual Industrial Production has climbed to 9.8% in comparison to the consensus of 8.7%.