USD/JPY rebounds to 147.50 as BoJ rate hike bets wane, US Inflation eyed

• USD/JPY bounces back to 147.50 as BoJ rate hike bets ease.
• BoJ Ueda doubts Japan’s economic strength amid weak consumption.
• Fed policymakers would confirm that inflation will return to 2% before considering rate cuts.

The USD/JPY pair recovers to 147.50 after a two-day consolidation in the European session on Tuesday. The asset rebounds as the Japanese Yen weakens after Bank of Japan (BoJ) voiced doubts over Japan’s economic outlook.

BoJ Ueda said in Tuesday’s Asian session that the economy is recovering on a few economic grounds as consumption remains weak. Also, Finance Minister Shunichi Suzuki said separately that Japan was not at a stage where it could declare a victory over deflation. The commentary from BoJ Ueda and FM Suzuki has dampened market expectations for the BoJ exiting the negative rates.

The expectations for BoJ quitting the expansionary policy stance were significantly higher before BoJ Ueda’s commentary as the revised estimate for Japan’s Q4 Gross Domestic Product (GDP) shows that the economy was not in a technical recession in the second half of 2023. The revised estimates show that the economy grew by 0.1% against a degrowth of 0.1% indicated from the preliminary estimates.

Also, a few BoJ policymakers expressed optimism for a positive wage cycle, which could keep inflation sustainably above the desired rate of 2%.

Meanwhile, the market sentiment remains upbeat ahead of the United States Consumer Price Index (CPI) data for February, which will be published at 12:30 GMT. The inflation data will provide a fresh outlook on the US interest rates. Federal Reserve (Fed) policymakers want to see inflation data easing for months as evidence before considering a dovish interest rate decision.